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Outsourcing: Not dead, but evolving thanks to the cloud

Outsourcing isn't going away any time soon, but new technologies and business needs are altering the way it is used.

Reports of the death of outsourcing may be exaggerated, but instead of simply 'outsourcing the problem' organisations are getting more sophisticated about how they buy IT services.

Global outsourcing market revenue will grow just four percent by 2014, predicts analyst Ovum, which said tough renegotiations and restructurings will be a key future characteristic of outsourcing relationships. Roughly $146bn-worth of contracts are due to expire by the end of 2014.

Thomas Reuner, principal analyst at Ovum, said that while some commentators had predicted the death of outsourcing, it remains a strategic tool for businesses. "I don't see a reversal of outsourcing, I see more flavours," he told TechRepublic.

In the US, Ovum expects the $92.3bn-worth of expiring contracts to provide a strong stimulus for the outsourcing sector, while demand in Europe will remain subdued as the key UK public sector reforms its procurement processes, the Eurozone remains volatile, and customers push hard for better deals.

New technologies such as cloud computing will change how services are delivered and may also put pressure on profits.

"Renegotiation and delivering more for less is the norm so with that new technologies come in like the cloud," said Reuner. "Cloud is commoditising a lot of IT, it's a not a tool or lever to go to high margin business if anything it's the other way around it's taking out margin."

But he added: "Four percent, given that a lot of other segments around IT are declining, while not spectacular is still growing. We will see different flavours of outsourcing; if you think about cloud there are different flavours of cloud. Public cloud is in itself an outsourcing arrangement, so we see outsourcing being deployed in different ways," Reuner said.

IT procurements are being broken down he said, so that with multi-sourcing organisations will split out infrastructure, applications and business processes and give these to a select group of providers "so you don't see these megadeals anymore which we have seen some years back".

And whereas outsourcing was often seen as a way of cutting costs (or at least getting rid of an unsolvable tech headache) Reuner said firms are not choosing outsourcing just to cut costs, because there are now easier ways to do it.

"Outsourcing is not necessarily the tool especially in the private sector for driving down cost. People will look at low-hanging fruit process optimisation, optimising their shared services because they have more control. It's a more complex picture out there people are not looking at it for the silver bullet any more."


About

Steve Ranger is the UK editor of TechRepublic, and has been writing about the impact of technology on people, business and culture for more than a decade. Before joining TechRepublic he was the editor of silicon.com.

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