IT Outsourcing has been undergoing significant change as of late because of rapid developments in cloud services, automation, coordination, cost cutting, greater buyer experience, and developments in organizational/governance models.
Today’s article will be all about the various trends in IT outsourcing, what they mean, and how they’ll affect the consulting world.
What Are The Trends?
1. Automation. Labor costs for outsourcing companies are increasing, and turnover is quite high because of the repetitive nature of the work. Companies such as Blue Prism have developed a toolkit that outsourcing companies can use to automate repetitive business processes such as data entry. The advantage of these virtual robots are that they work 24/7, never get tired / make mistakes, and cost about 1/3 of hiring full time employees.
The challenges of this sort of automation are that its difficult to sell because it takes control out of human hands, and it can’t be used to automate things that require nuanced human judgment.
You can read more about the future of automation of business processes here.
2. Rise of Global Business Services Models. A Global Business Services (GBS) Model is a way for companies to manage their portfolio of business processes. It helps them figure out what to outsource, what to organize into shared services centers, what to automate, and how to build governance processes to make sure it all runs properly.
3. Increased purchase of cloud services. This one’s interesting — according to Deepak Khosla of NIIT technologies, the cloud was once seen as a big threat to outsourcing firms because it eliminated the need for application development, implementation, and maintenance. Apparently, though, outsourcing firms have compensated by offering advisory services for companies who are interested in setting up their own private clouds.
4. Everything as a Service (XaaS). Software delivered through the cloud on a subscription basis can increase flexibility, lower cost, and prevent systems from becoming outdated.
5. Co-Creation. Client organizations may invest in joint venture with their outsourcing providers to help the providers develop new processes / technologies / products. In return, they either get an exclusive contract with the outsourcing provider (i.e. Apple is spending $10.5 billion on cutting edge machinery and placing it in supplier’s factories), or they get a piece of the action when the new product / process / service is sold to other client organizations.
6. Crowdsourcing Models. Right now outsourcing providers employ a large set of people, usually overseas. It’s possible that in the future they may be able to rely on crowdsourcing and improved communications technology to build disparate teams of people around the world to solve their client’s problems.
7. Insourcing. 20-30% of all services that are traditionally outsourced may be brought back in house.
8. Service Integration. Outsourcing clients are allowing service providers or other third parties to manage their portfolio of services. Many of the major outsourcing consultancies (Capgemini, Accenture, IBM, Infosys, Wipro) are also competing for this role. It’s unclear where this will go – will outsourcing clients continue to outsource service integration or will they bring it in house?
9. Inter-Provider Cooperation. Outsourcing clients are more and more buying their services from different providers, and requiring providers to work together.
10. Indian Companies Competing for Infrastructure Deals. Infrastructure (security services, networking, enterprise services, data centers, and cloud) has been traditionally offered by American companies such as IBM or Accenture. However, Indian companies such as Infosys have gotten to the level where they can compete as well.
11. Governance Becomes More Important. Because clients have larger and more complex portfolios of providers, they need to have appropriate governance models to make sure that IT generates business value, overseas / tracks management’s performance, and mitigates risk.
12. Growth of Asian IT Spend. Asian IT spend is projected to grow from 20% to 26.3% of total in the next decade.
Recommended Further Reading
1. CIO Magazine