By Daniel Hunter
Weak demand for goods or services, political and economic gridlock in emerging markets and ongoing uncertainty surrounding the global economy have combined to force businesses to renew their cost-cutting programmes.
KPMG’s latest Global Pulse survey suggests that 9 out of 10 organisations now believe they have not gone far enough to reduce overheads, but with staff levels already low, they are looking to redesign business processes and outsource key activities.
However, KPMG’s analysis also shows that the dent in confidence is not preventing businesses from investing in new technology or expanding operations in emerging markets. According to the findings, most are focusing on business analytics, cloud and social media in the hope technology can drive recovery beyond 2013.
“Business leaders are as nervous now as they were for much of the past 12 months," Lee Ayling, a partner in KPMG Management Consulting said.
"Yet, even with fears over finances, there is an underlying concern that organisations no longer have adequate processes or skills in place to handle a potential upturn in demand. The result is that many are turning to technology and investing in reporting and analytics software to help make better business decisions faster.”
The survey results indicate that the lack of internal expertise led to increased demand for third-party business and IT services during the final quarter of 2012. 78 percent of service providers cited pipeline growth during this period, a jump of 40 percent from the previous Global Pulse survey. In a sign of the difficult position many organisations find themselves in, 59 percent of providers also anticipate customer demand for business and IT services to increase between now and June 2013.
In recent months 70 percent of requests for help have centred on IT projects. At the other end of the spectrum, just 9 percent of organisations are seeking help with customer service, suggesting that cost-cutting is more important to some of them than securing a loyal customer base.
The majority of service providers (85 percent) also suggest that they are able to increase the scope of work for existing clients. However, even with increased demand for their services, the outsourcing industry is being forced to keep costs down. Just 31 percent indicate that contract profitability is improving on new deals - a fall from 36 percent in 12 months.
Asked to identify the reasons why market conditions are tough, almost two-thirds (60 percent) suggest that ‘political or government gridlock’ is creating the uncertainty and half (44 percent) also claim ‘weak customer demand’ is hindering cash-flow. More than 1 in 4 (28 percent) believe that poor leadership skills in the Boardroom will hinder progress and 78 percent focus on dysfunctional or fragmented organisational structures.
Some expectations are, however, more positive. 63 percent, for example, anticipate the maturation of innovative technologies such as cloud and social media and 55 percent believe that expanding emerging market opportunities will be key to any growth prospects over the next three to four quarters.
“Most people accepted, long ago, that the next few months would be tough. Some of the fears for business have been exacerbated by ongoing difficult economic conditions across the globe, but other problems are more closely rooted to home," Ayling concluded.
"How can organisations expect to ride out the economic storm with fragmented structures or approaches to businesses that are still inefficient? The simple answer is that they can’t — and if they fail to change we are likely to see deals contracting for some time to come.”
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