Coming Right Up: Predictions For The Year In Outsourcing
Deloitte has identified five major trends that are likely to impact the support services sector over the coming year. Based on key conversations with industry leaders and clients, most are already experiencing at least one of these trends and many believe it will become critical feature during board discussions in 2014. Our trend predictions include: the use of data analytics; the focus on either a local or international presence; outsourcing solutions focussing on service delivery; the divestment of non-core assets; and exporting UK expertise.
1. Data analytics
Data analytics will be central to managing business and driving contract performance. Our clients are expanding their use of data analytics as they look for innovative ways to manage workforce mobility, contract profitability and supply chains. Using data intelligently is the key to unlocking many of the strategic questions fundamental for business growth. Most companies have the data available; the challenge is having the resources, time and skill to use this data to make critical business decisions. Of course, the data challenge isn’t limited to support services companies alone, but in the context of complex pricing, long-term contractual arrangements and large workforces, using data will drive business performance.
2. Focussing on either a global or local presence
Very few facilities management operators have a global reach that matches the needs of their ever-increasing international clients. Given this, we expect providers will look to focus on either an international or local presence throughout 2014. We are expecting a number of key players to build an international presence through a range of different business combinations, such as partnerships, alliances, acquisitions and collaborations. Companies who choose not to build a cross-border presence will find themselves excluded from certain procurement exercises. On the other hand, a focus on local markets will allow them to improve penetration and enhance local relationships that the international players will struggle to replicate in their own local markets. We expect to see many providers make a definitive choice between these two models in the next 12 months.
3. Shifting focus from costs saved to service delivery
The outsourcing marketplace is changing as many companies now consider value to be measured less by costs saved, and more heavily based on service delivery. This is increasing the pressure on outsourcers to find innovative ways of delivering value to clients, while ensuring that contract requirements are maintained. Innovative service delivery will be crucial for outsourcers in 2014, as well as minimising financial risk in an environment where the outcomes are based on more than one criterion.
4. Divestment of non-core assets
We expect to see a range of divestments of non-core assets as organisations focus on core activities to reduce business risk and recycle capital. 2014 will likely see a number of large-scale outsourcers begin programmes to restructure under-performing businesses and deploy capital in different ways. This is leading companies to review their portfolios and prepare assets in non-strategic markets and higher than average risk profiles to be sold. As a result, we could see a much higher churn in portfolios, leading to opportunities for international players to gain UK market entry in 2014.
5. Exporting UK expertise
Lastly, a major focus for the support service sector in 2014 is international markets. These markets will be the primary driver of growth, with mergers and acquisitions (M&A) making the largest contribution. Despite an improving economic outlook for the UK, many organisations are looking overseas to deliver growth and maintain rates of return in the long term. There are a number of options to consider when exploring international expansion opportunities including joint ventures, investing in and opening satellite operations, as well as M&A. While it continues to be a favoured method of international growth, it can be challenging for companies to identify suitable acquisition targets due to the lack of publicly available data. As such, gaining a regional or national presence is likely to remain very difficult. This is driving providers to engage with potential targets for extended periods of time, often having to use a local partner in the first instance.
These major trends shed some light on the areas of opportunity and risk that these companies will continue to face. This year a single theme running throughout conversations is the focus on globalisation. Addressing how to establish or achieve an international presence has been identified by industry leaders as a priority in 2014 and as such, will be at the forefront of the board members agenda. Whilst companies are at different business stages, we will begin to see organisations overcome challenges to adopt these trends in the coming year.
About the Author
Oliver Hemming leads commercial due diligence in the Professional and Business Support Services sector at Deloitte. He works in the 70-strong Private Sector Strategy team and focusses on advising private equity and corporate clients.