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What's next in IT Services Outsourcing World?

By Anuj Sachdeva ·
IT Services Outsourcing has been on the radar since decades but it really picked up in 1980?s and since then, lot of companies worldwide have been looking at outsourcing as an option primarily to reduce cost or to look for skill-set which is not available in-house. Over the years, outsourcing of IT services has taken different perspective and customers have started perceiving this as a strategic management option which wasn?t the case earlier. Customers started not only looking at outsourcing for cost advantage but also considered it to give a span of attention on the other business issues.

The view gradually changed to that if a company is looking to expand its operations, than outsourcing is a profitable way in setting up their groundwork in other countries. Today, outsourcing is viewed by many organizations as a strong business tactic that ultimately is a superior economical approach to developing products, services and increasing the overall efficiency. The global IT services spend for 2008 was upwards of $680B. The numbers tell its own story, in 2005 it was around $500B which means around 9% rise year on year since then and these numbers are forecasted to rise around 6% for next couple years.

What do all these numbers imply with all that is happening around us? The global economy has been tumbling since last one year, right from companies like Lehman brothers shutting down to Madoff?s financial story to impact on retail market. This is far worse than the last economic downturn in 2001, when IT services spend dipped slightly from 2001 to 2002 but the impact could be much worse in terms of numbers this time. There have been mixed reviews as to what would be the impact of all this on IT Services outsourcing companies. Few commented by saying that it will have positive impact in a long run as more customers will look to outsource and go to economical outsourcing destinations while few said that it will have negative impact as NAMER companies which contributes to more than 60% of total spend might even consider to restrict jobs within their own country and do less outsourcing to boost the economy. Just what we never wanted at this stage to happen, another financial fiasco: The Satyam saga. And that too right in the middle of all the global crisis and to kick off 2009 on a worse note possible. We had just got around digesting Madoff?s fiasco of $50B washout.

Even though the Satyam fiasco is smaller in number compared to Madoff but this will have long lasting impact on Indian IT industry and the tumbling of Indian stock markets tells it all.On one hand, it might be a boost of revenues for top tier Indian companies as customers will be forced to switch vendors while on the other hand customers worldwide will think twice to outsource services to India and the real question will be on the corporate governance.

Another thing which this will bring to the industry is that customer will now become more and more demanding and will look for something extra from the vendors.

This will lead to few niche companies coming in the radar who are focused on creating value through innovation for customers business. Our company Synverse is focused on creating that value and goes that extra mile to increase business productivity and operational efficiency. We are focused on creating innovative frameworks with lower TCO and hosted on next generation technologies which reduce the lifecycle of a project substantially.

While the global economy is going through a downturn and Madoff?s and Satyam?s case will make it worse in near term but still there is a huge potential for outsourcing players specially for the ones who are focused on creating business productivity through automation, services productisation and process reengineering. My view is while the top tier service providers will continue to sustain their revenue line if not grow, I think there are significant challenges ahead for mid level companies to sustain their revenue line as small/niche companies will definitely tap on that by creating more value to customers.

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Insourced, outsourced, hosted, locally provisioned

by Tony Hopkinson In reply to What's next in IT Service ...

Changing any of these requires serious investment, and that is going to be hard to come by.
We can waffle about TCO, salary costs etc, but even with the traditional myopic business man's IT outlook, it's going to be real hard to get that money.

No point in talking about spending now to save later, if that argument had any business validity, no one would be selling their future for the present anyway....
There might not be a later, things might change, and get even cheaper.
I predict a lot of committee meetings and naff all action.
Our customers are going to want more for less, and if we want to stay in business at all, we are going to have to deliver. The best (only ?) way to do that is added value through quality.

The cost cutter, get it cheaper mentality is pervasive. Low cost service = low quality service, using low quality people and low quality products, with low margins. One financial sneeze and you are dead, as we have recently found out.....

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