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2015 Full Year Review

Arvato Index reveals year of two halves for UK Outsourcing

UK outsourcing experienced a year of two halves in 2015, with the public sector dominating the market in the third and fourth quarters as spending rose sharply, according to the Arvato UK Outsourcing Index


Public sector spend in H2 rose 55 per cent compared with first half of the year


Only 6 per cent of services delivered entirely offshore compared to 9 per cent in 2014


26 per cent year-on-year rise in government spending on outsourcing


Retail outsourcing increased by 47 per cent year-on-year

£5.67 billion

£5.67 billion of UK outsourcing agreements were signed in 2015


HR continues to be the most outsourced back-office service

Following a relatively quiet first half of the year, government spend increased by 55 per cent in July to December with public sector organisations agreeing deals worth £2.31 billion. In comparison, private sector spending lost momentum in the final two quarters, falling 42 per cent to £688 million.

Central government played a pivotal role in the public sector rise, with deal value more than trebling to £1.77 billion in the second half of the year compared with the period January to June. According to the new data, procurement focused on a mixture of HR, document management and multi-scope IT infrastructure agreements.

Debra Maxwell, CEO, CRM & Public Sector, Arvato UK & Ireland, commented: “The surge in activity across the public sector comes as no surprise as the market rallied following the general election. In addition, last year’s Autumn Statement has presented new challenges to government organisations with many under increasing pressure to find greater efficiency savings.

“It’s clear from the research findings that an increasing number of departments and authorities are turning to the private sector to help them with the service transformation needed to address the new targets introduced in November’s Spending Review.”

The research, compiled by business process outsourcing (BPO) provider Arvato, in partnership with industry analyst NelsonHall, identified a total of £5.67 billion worth of deals across the UK public and private sector outsourcing markets in 2015.

According to the findings, the proportion of outsourced work delivered from the UK is increasing, with only 6 per cent of deals signed last year being delivered entirely offshore, down from 9 per cent in 2014. UK outsourcing is also benefitting from a healthy flow of new work into the sector, with first-time agreements accounting for 61 per cent of all contracts signed last year.


Buoyant Government Outsourcing Market Thrives In 2015

The value of outsourcing contracts across the public sector saw a 26 per cent year-on-year rise in 2015, with deals signed last year worth a total of £3.8 billion, according to the findings. Growth was also seen in average contract value, which increased by 12 per cent to £69 million over the same period.

Local government outsourcing thrived in 2015, with the total value of contracts agreed reaching £756 million, representing a year-on-year rise of 23 per cent. The research found that average deal value (up 30 per cent) and contract lengths (up 29 per cent) also increased over the same period, indicating that outsourcing remains a key strategy in councils’ plans to meet new efficiency challenges.

The Index, which tracks the volume and nature of UK outsourcing agreements, shows that local authority spending concentrated on securing deals across the back office, with contracts focusing on revenues and benefits, HR and multi-process customer management services.

Outsourcing Boost Among Retail Businesses

The retail sector saw sharp growth in outsourcing activity in 2015, with the number of deals surging 50 per cent year-on-year and total contract value reaching £381.5 million, a 47 per cent rise over the same period.

According to the findings, the rise can be attributed to a boost in IT outsourcing (ITO) spending as retail firms turned their attention to infrastructure and network management agreements.

Bryan Mouat, CEO of Arvato Financial Solutions in the UK and Ireland, commented: “With new technology driving rapid shifts in consumer behaviour, the question for retailers is how they continue to provide a seamless shopping experience across multiple channels. As the research suggests, a growing number of companies are turning to external providers for the technology and expertise required in an increasingly digital market place.”

HR Outsourcing Deal Value Sees Substantial Year-On-Year Growth

Deals procured by HR departments accounted for 22 per cent of outsourcing contracts agreed in the UK last year, with the total value rising sharply to £351.2 million representing year-on-year growth of 57 per cent. Average contract values also saw a significant increase, more than trebling year-on-year as organisations secured more complex agreements, including HR shared services contracts.

The research findings identified that private sector businesses were behind 71 per cent of the HR deals signed last year, with financial services (16 per cent) and manufacturers (13 per cent) the most active buyers.

According to the full-year Index, HR departments focused spending on securing deals for payroll and benefits administration services.

Other headlines from the full-year 2015 index include

Overall 67 per cent of spend came from the public sector and 33 per cent from businesses

Business Process Outsourcing (BPO) represented 57 per cent of deals and £2.5bn spend

Agreements for ITO accounted for 42 per cent of contracts signed at a value of £3.1bn

Combined BPO & ITO deals represented £54m spend

The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato UK. The research is based on an analysis of all outsourcing contracts secured in the UK market during 2015.

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