Everest Group Research: Chief Digital Officers Influencing More Outsourcing Spending Decisions

Service providers in the outsourcing industry say enterprise CIOs, COOs and CFOs may still control the largest budget centers for sourcing services, but their influence on future deals is slipping in favor of the chief digital officer (CDO), according to new research conducted by Everest Group.

In a recent survey of leading global sourcing service providers, 55 percent said they believe the CDO's domain is the fastest-growing budget center for outsourcing services. Respondents indicated they believe CDOs are becoming an influential C-suite executive in future outsourcing initiatives.

"Service providers are perceiving a significant shift in who most influences outsourcing deals within the enterprise," said Michel Janssen, chief research guru at Everest Group. "As enterprises implement more and more digital initiatives through their sourcing agreements, these deals are increasingly being directed from a more firm-wide strategic or business unit perspective within the enterprise, namely in the purview of the chief digital officer.

"The CDO is focused on the transformation story, the improvement of processes from end to end, and how to best position the company to compete in a rapidly evolving marketplace, rather than being focused on deploying technology for technologies' sake," added Janssen. "This shift in influence to a CDO-controlled buying center bodes well not only for enterprise transformation initiatives but also for service providers who are positioning themselves as valued partners in the transformation process."

The Everest Group survey also revealed how service providers feel about their future paycheck, what keeps them awake at night, and what investments they believe actually pay off with respect to creating client value. 

• Industry optimism is high…and rising. Employees of service providers are optimistic and excited about their bonus potential. While 2017 delivered mid-single-digit results for revenue growth, 72 percent of service provider respondents are confident that revenue growth will be significantly higher in 2018 and 2019.
• Enterprise automation in all forms is red hot. Service providers are investing their money in enterprise automation, seen as the next best value proposition beyond labor arbitrage to respond to ever-present demands for productivity and cost reduction. Forty-nine percent of survey respondents are investing in robotic process automation (RPA) and 66 percent are investing in artificial intelligence (AI) and cognitive computing, because they believe these areas have the highest potential for client value creation. Interestingly, only 14 percent are investing in blockchain and 27 percent in Internet of Things (IoT), both of which ranked low on perceived client value creation.
• The issues that most frequently cause service providers to lose sleep at night are pricing pressures (cited by 41 percent of respondents) and adapting to new business models (a concern of 40 percent). The shortage of talent was mentioned by 38 percent of respondents and is seen both as a challenge and an opportunity to provide value. A shortage of next-generation skills is a particularly troubling challenge, with 71 percent of service providers declaring it their most important talent issue. In contrast, few service providers (19 percent) are worried about regulations in key markets, and only 8 percent are anxious about finding capital.
• Reducing costs will never go out of style, but availability of skilled talent is becoming a key driver of sourcing deals. Fifty-nine percent of service providers say that cost drives winning value propositions more than any other factor and always will. However, service providers also believe the shortage of talent (cited by 56 percent) and the need to execute more quickly (mentioned by 57 percent) comprise value propositions that win deals. Notably, bringing jobs back onshore or avoiding capital investments are value propositions that are perceived to have little to no traction with enterprise clients, mentioned by only 13 percent and 27 percent of service provider respondents respectively.