Managed services move from back office to mission-critical

Business leaders see outsourcing as essential to filling talent gaps, driving digital innovation, and accelerating transformation.

Standing still is not an option these days.

Business leaders know they need to continually evolve their companies, keep pace with technology, attract and retain talent, and generally be able to stay resilient no matter what the fast-moving business cycle throws their way.

The bigger challenge: How can they do all that faster?

The need for speed around accelerated business outcomes was a major theme that emerged from our recent conversations with 800 C-level executives from large global companies as part of a broad new KPMG survey with our partner, HFS Research.

To move faster, many leaders say they are looking beyond their company’s internal capabilities and partnering with a new class of managed service providers that can help them create ongoing—and more sustainable—business value.

In the process, they are reimagining some traditional ideas about “outsourcing” and extending a new breed of managed services well beyond just back-office functions.

Top selection criteria

Respondents cited these as the top two factors in choosing a managed services provider:

Technology platforms and capabilities

Subject matter expertise

The need for speed

Among the big insights that jumped out in our new report, “KPMG and HFS Managed Services Outlook 2022”: 75 percent of the executives we talked to plan to increase spending on managed services in the next two years, and just about all of them (97 percent) expect that this expanded investment in outside partners will improve revenue, profitability, and cash flow.

This focus on adding external expertise does not reflect a lack of confidence in internal skills and capabilities, but instead a realization that, in a business world that is getting increasingly specialized and complex, companies that want to move faster simply cannot go it alone. The right managed services partners can more rapidly deliver domain expertise—and resources—in areas critical to growth, such as data and technology, cybersecurity, and even risk compliance and reporting.

Time and money: 83 percent of the executives we talked with said the ability to accelerate business outcomes was atop their goals for using managed services, and 86 percent cited cost savings.

Innovation and growth: Well beyond just functional process support, respondents said they are expecting significant new contributions from their service partners across broader areas of their business. For example, 8 in 10 of the executives now view managed services as a way to foster innovation, support digital strategy and transformation, and even enhance customer experiences.

Today versus tomorrow: Information technology (IT) (54 percent) and cybersecurity (36 percent) are where executives say they get the biggest value from managed services today. But that mix seems certain to change in the next few years. While 8 in 10 said they plan to continue to increase investment in IT, the significant new commitment to expanding outsourcing to other parts of the business means the value will be spread evenly across three areas—IT/cyber, core operations, and research and development—within the next two years.

From back office to mission-critical

Another big finding from our report is the dynamic rethink that is under way around the long-standing assumptions that managed services is usually best suited to back-office functions. The 800 executives in our survey—from companies with at least $1.5 billion in revenues in major sectors like retail, financial services, and healthcare—are moving beyond that traditional, functional-only model.

Increasingly, they expect to connect an expanded level of managed services throughout the enterprise, and especially as they battle for the required talent in growth-critical areas like digital innovation, customer experience, and risk management. Indeed, 80 percent of the executives said that the talent from their managed services partners will play an essential role in sustainable business transformation.

With this approach, companies can better link the front, middle, and back offices into a more fully connected enterprise that provides all areas of the business a better view of—and a bigger stake in—the company’s goals. And the executives in our survey expect that connectivity will deliver significant business outcomes. For example, about 7 in 10 anticipate improvements via managed services at scale in each of the following areas:

Customer experience and satisfaction

Employee satisfaction

Compliance support and management

Supply chain efficiency

Finance and accounting efficiency

For more on how managed services are being leveraged across organizations, read our related report, Connecting the front, middle, and back office.

The new value proposition

Managed services have expanded their impact over the last few years, with much of the growth speeded up by pandemic-induced necessity. But, on their own, of course, managed services are certainly no panacea. After all, you can’t outsource the responsibility to grow your business.

Successful partnerships will require new thinking around how service providers are incentivized and evaluated on an ongoing basis, as well as clearly defined lines around who is responsible for strategy and outcomes in each service area.

Only 14% of respondents say their organization evaluates service provider performance by outcomes achieved versus planned.

From KPMG and HFS' Managed Services Outlook 2022.

Some companies remain skeptical of getting overly reliant on managed services—a point of view that is often based on experiences of the past, in which outsourcing partners simply covered existing functions without any effort to add any new value.

But this new, emerging class of managed services offers a whole new value proposition: new ideas, expanded talent pools, enhanced data and technology, and the ability to help partners truly innovate and accelerate business transformation.