Recent Posts
« Who are the champions? | Main
Friday
Jun172011

11 Outsourcing Trends to Watch in 2011

Smaller contracts and hard lines on prices. Cloud-related commotion and back-door deals. Increased offshoring and decreased customer satisfaction. Happy New Year, outsourcers!

By Stephanie Overby

CIO — Outsourcing activity is expected to creep back in 2011, but things are hardly getting back to normal in the IT services space. The new year will be marked largely by upheaval—smaller contracts, cloud-related chaos, increased offshoring and decreased quality, for a start.

Read on for more. It's not all bad, we promise.

1. Progressive Outsourcing

The year will be marked by the inking of smaller IT services deals, many of them by first-time buyers who sat on the sidelines in 2010, say industry watchers. Providers, happy to have a foothold, will push such customers to expand the scope of their relationships over time—the old "penetrate and radiate" approach. Contract activity will "creep back throughout 2011, as the recover stutters and buyers pull the trigger on sourcing activity," says Phil Fersht, founder of outsourcing analyst firm HfS Research.

2. Diving for Dollars

Facing a slow economic recovery, IT leaders will continue to scour their existing outsourcing arrangements for savings. "There's a pot of gold in every contract, and in some cases we have found a pot worth millions," says Mark Ruckman, an independent outsourcing consulting working in conjunction with Sanda Partners. IT services customers may reconcile their invoices with their original contracts with an eye toward under-delivery or over-payment, for example, or replace contractors from large sourcing providers with IT professionals from local temp agencies.

3. Outsourcing, Meet Cloudsourcing

Even if some of the discussion of cloud-based offerings from IT service providers is largely hot air, it will continue to be a hot topic in the industry. "The emerging cloud sourcing market will cause the destruction of the outsourcing market as we know it today," predicts Ben Trowbridge, CEO of outsourcing consultancy Alsbridge. "The two markets will merge and cloud sourcing will drive the rebirth of outsourcing."

Cloud players like Amazon, Google (GOOG), and Rackspace are hitting traditional service providers like IBM (IBM) and HP (HPQ) where it hurts. "An executive of one of the current low cost leaders recently told me they're forecasting the need to be able to remain profitable while seeing the price of some of their services drop by 70 percent over the coming year," says Trowbridge.

Look for mergers and acquisitions as legacy providers fumble their way forward. Customers, too, will need help stitching together old and new. "IT is going to be coordinating an increasing portfolio of third -party applications hosted externally," says Brian Walker, managing director of EquaTerra's information technology advisory. "The theme in 2011: SaaS-to-SaaS integration."

4. Back-Door Deals Put CIOs at Risk

Many of the discussions and decisions about cloud-based offerings will be handled by business unit or function owners rather than IT, says Kamran Ozair, executive vice president and CTO at offshore outsourcer MindTree. That could pose problems down the road. "CIOs must get ahead of business users reasonable zeal for the power of focused SaaS applications that could back the enterprise into stealth architecture decisions that could be expensive to undo," says Trowbridge. "Business stakeholders want cloud, and they know smart CIOs can mitigate its risks," adds Fersht. "However, IT professionals must tool-up to deliver cloud to their business stakeholders, otherwise they risk a gap growing between business demand and IT supply."

5. The End of Customization

"Clients will be increasingly open to changing their internal processes and accepting standard 'vanilla' services in 2011," predicts Bob Mathers, principal consultant for Compass Management Consulting. "Service providers will put renewed emphasis on internal initiatives to standardize their own offerings to leverage economies of scale and stabilize profit margins." It's the stuff of benchmarking dreams, but economic conditions may turn it into a reality. Stan Lepeak, managing director of global research for outsourcing consultancy EquaTerra, also predicts more process, technology, and location standardization including platform-based solutions.

6. Prices Get Firm

Remember when you could persuade (read: bully) your provider into lower pricing? Days of auld lang syne, my friends. "Outsourcing providers have filled up their prior excess capacity and will be driving to secure higher price points," says David Rutchik, partner with outsourcing consultancy Pace Harmon. "Pounding on the table for price reduction is unlikely to be effective this year."

Customers seeking savings will have to bone up on delivery models, deal structures, and value drivers instead. And vendors will have to woo clients with performance rather than a low bid, says Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group. "As a result, we will see select players grow disproportionately, taking clients away from others."

Cloud-computing prices could also become less—well, cloudy. Pricing models will mature, predicts Dave Brown, managing director of EquaTerra's IT advisory, and buyers will better understand the specific offerings.

7. M&A: East Meets West

A merger between a major Indian IT service provider and a U.S.-based outsourcer? It could happen next year, say some industry watchers, and an Indian company may be on the buying end. Western providers have adopted the process and cost initiatives first embraced by their Eastern counterparts. Indian providers are skilling up to try to win more consulting and integration work. "The cultures are moving closer together," says Fersht of HfS Research. "2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents."

"It has long been talked about," says Joseph King, Chief Marketing Officer at MindTree. "There is no longer [cost] that CIOs can squeeze from their India partners. So for differentiation, India providers will be forced to move up the value chain."

8. China, Brazil, and Egypt Take Center Stage

"Buyers are growing more interested in offshore services delivered from locations other than India," says EquaTerra's Lepeak. And service providers will continue to shift their delivery centers to markets such as China, Brazil, and Egypt, and not simply to address issues such as wage inflation or staff attrition. They want a piece of the business in hot emerging markets. "Strong sourcing market growth will be in geographies with strong economies, led by Brazil, China, India and the Middle East," says Bendor-Samuel of Everest. "Countries with strong economies represent big markets with big demand for transformational and discretionary spend activity."

9. Protectionism Will Continue...With Limited Effect

It's practically inevitable with continued high U.S. unemployment levels that the new year will bring with it more proposals by American politicians that appear to limit the use of offshoring.

But any proposed protectionist legislation will be marked mostly by sound and fury. "Most of these measures will fail to gain traction and pass into law, and those that do will be difficult to implement and audit," says Bendor-Samuel.

The attention that such measures, successful or not, draw could put pressure on offshore companies to increase their onshore capabilities, Bendor-Samuel says. But they hardly need more impetus to do that (see prediction #7 above). Concerns about a tax on offshore call centers specifically could be an incentive to reduce call volumes through the use of more self-service and automation tools, says Compass's Mathers. But they hardly need more incentive to take more labor costs out of the outsourcing equation (see prediction #TK below).

10. Providers Embrace Mass Automation...

"It continues to become harder to turn a good profit as a third party service provider," notes EquaTerra's Lepeak. Pressure to keep costs down and rive performance up, outsourcers will rely more heavily on automation, says Rutchik of Pace Harmon, from optical character recognition to whole lights-out, employee-free delivery centers.

Providers will increasingly be slinging such automation tools as well. "Applications that reduce the labor a client is required to perform the services will be offered at lower implementation and running costs than they have in the past," says EquaTerra's Brown. "This will continue to create demand for additional opportunities and reduce the staff necessary to support critical business applications."

11. ...And Mass (Offshore) Migration

The internal corporate IT job isn't the only one expected to go the way of the dodo in coming years. IT enterprise customers arent the only Expect more vendors to make like HP and attack labor costs through layoffs and offshoring in 2011. "[HP] has emerged leaner and dramatically more price competitive, " says Bendor Samuel. "This increased competitiveness has already set off a chain reaction as competitors increasingly recognize the new competitive realities and move, in turn, to cut cost and match price." The easiest way to do that it to move large swaths of delivery personnel to lower cost locations. "This mass migration of work is and will further stretch offshore delivery capabilities, resulting in decreasing quality and communication problems," Bendor-Samuel predicts.

http://www.cio.com/article/647965/11_Outsourcing_Trends_to_Watch_in_2011

PrintView Printer Friendly Version

EmailEmail Article to Friend

References (217)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Muscle ripped x
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: build Muscles
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: resources
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: view site…
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Oferta
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: 3 day diet
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: emagrecer rapido
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: towing 92108
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Pou Cheats
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Fifa 14 Hack
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: build muscle mass
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Website
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: hackyourgames.net
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: Garcinia Ultra
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: free psn codes
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: free xbl codes
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: necklaces
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    11 Outsourcing Trends to Watch in 2011 - Outsourcing & Transcription News - TPro
  • Response
    Response: 博狗扑克
    I found a great...
  • Response
    Response: Len Town
    I found a great...
  • Response
    Response: Brain Alfandre
    I found a great...
  • Response
    Response: Maile Dechico
    I found a great...
  • Response
    Response: Gregory Clevinger
    I found a great...
  • Response
    Response: Enrique Jennings
    I found a great...
  • Response
    Response: Cedric Lahey
    I found a great...
  • Response
    Response: Tawny Cothren
    I found a great...
  • Response
    Response: Tara Hammerle
    I found a great...
  • Response
    Response: Dorotha Snair
    I found a great...
  • Response
    Response: Marlon Rosacker
    I found a great...
  • Response
    Response: Shery Kwilosz
    I found a great...
  • Response
    Response: Maranda Sensor
    I found a great...
  • Response
    Response: Werner Hippert
    I found a great...
  • Response
    Response: Mckinley Disla
    I found a great...
  • Response
    Response: Jeraldine Czernik
    I found a great...
  • Response
    Response: Philomena Kasack
    I found a great...
  • Response
    Response: Ligia Budiao
    I found a great...
  • Response
    Response: Bertram Worden
    I found a great...
  • Response
    Response: Silas Bramasco
    I found a great...
  • Response
    Response: Shela Acey
    I found a great...
  • Response
    Response: Clayton Morin
    I found a great...
  • Response
    Response: Gladys Chasteen
    I found a great...
  • Response
    Response: Jeffrey Kuhn
    I found a great...
  • Response
    Response: Marlen Schatzle
    I found a great...
  • Response
    Response: Demetrius Ellisor
    I found a great...
  • Response
    Response: Gregg Vonallmen
    I found a great...
  • Response
    Response: Mikel Vasmadjides
    I found a great...
  • Response
    Response: Joan Mariotti
    I found a great...
  • Response
    Response: Ja Furlotte
    I found a great...
  • Response
    Response: Shenita Mericle
    I found a great...
  • Response
    Response: Filiberto Slomba
    I found a great...
  • Response
    Response: Judi Hanlin
    I found a great...
  • Response
    Response: Daphine Reyna
    I found a great...
  • Response
    Response: Roseann Boldt
    I found a great...
  • Response
    Response: Corrie Castrataro
    I found a great...
  • Response
    Response: Quentin Saras
    I found a great...
  • Response
    Response: Leo Regalbuto
    I found a great...
  • Response
    Response: Jesenia Allford
    I found a great...
  • Response
    Response: Anibal Wheater
    I found a great...
  • Response
    Response: Bree Lepere
    I found a great...
  • Response
    Response: Jamison Hartly
    I found a great...
  • Response
    Response: Eilene Vanbogelen
    I found a great...
  • Response
    Response: Juli Harstad
    I found a great...
  • Response
    Response: Latosha Klapec
    I found a great...
  • Response
    Response: Rocco Stagles
    I found a great...
  • Response
    Response: Dwayne Hawken
    I found a great...
  • Response
    I found a great...
  • Response
    Response: Amada Grasmick
    I found a great...
  • Response
    Response: Diedra Dasmann
    I found a great...
  • Response
    Response: Kary Covell
    I found a great...
  • Response
    Response: Cassaundra Showman
    I found a great...
  • Response
    Response: Lemuel Sembrat
    I found a great...
  • Response
    Response: Rolando Cuddy
    I found a great...
  • Response
    Response: Columbus Nisly
    I found a great...
  • Response
    Response: Natisha Uresti
    I found a great...
  • Response
    Response: Suzann Sauler
    I found a great...
  • Response
    Response: Kacey Weidower
    I found a great...
  • Response
    Response: Rolf Hollinghead
    I found a great...
  • Response
    Response: Lynne Blue
    I found a great...
  • Response
    Response: Tona Broady
    I found a great...
  • Response
    Response: Shelton Archilla
    I found a great...
  • Response
    Response: Krysten Fegette
    I found a great...
  • Response
    Response: Cara Grace
    I found a great...
  • Response
    Response: Jacquelynn Hendry
    I found a great...
  • Response
    Response: June Rend
    I found a great...
  • Response
    Response: Valerie Koelewyn
    I found a great...
  • Response
    Response: Lashawnda Stark
    I found a great...
  • Response
    Response: Gerard Zedaker
    I found a great...
  • Response
    Response: Edmundo Vanstraten
    I found a great...
  • Response
    Response: Eugenia Orosco
    I found a great...
  • Response
    Response: Alanna Rosewell
    I found a great...
  • Response
    Response: Kurt Clines
    I found a great...
  • Response
    Response: Alfred Hamiss
    I found a great...
  • Response
    Response: Jule Mandelbaum
    I found a great...
  • Response
    Response: Belkis Lopiccalo
    I found a great...
  • Response
    Response: Levi Fuehrer
    I found a great...
  • Response
    Response: Scot Beatie
    I found a great...
  • Response
    I found a great...
  • Response
    Response: Tracey Polaco
    I found a great...
  • Response
    Response: Maudie Syner
    I found a great...
  • Response
    Response: Travis Lazio
    I found a great...
  • Response
    Response: Lane Curle
    I found a great...
  • Response
    Response: Marquis Tonner
    I found a great...
  • Response
    Response: Violet Mcelderry
    I found a great...
  • Response
    Response: Abdul Kahill
    I found a great...
  • Response
    Response: Vonnie Jondle
    I found a great...
  • Response
    Response: Vernon Melloy
    I found a great...
  • Response
    Response: Lea Letourneaux
    I found a great...
  • Response
    Response: Onie Castellion
    I found a great...
  • Response
    Response: Milford Verghese
    I found a great...
  • Response
    Response: Truman Dorcy
    I found a great...
  • Response
    Response: Rheba Dougal
    I found a great...
  • Response
    Response: Morris Blackie
    I found a great...
  • Response
    Response: Dewey Macklem
    I found a great...
  • Response
    Response: Jeanne Nettik
    I found a great...
  • Response
    Response: Claris Burly
    I found a great...
  • Response
    Response: Julie Spoonamore
    I found a great...
  • Response
    Response: Livia Vriens
    I found a great...
  • Response
    Response: Kory Koloc
    I found a great...
  • Response
    Response: Eryn Dammann
    I found a great...
  • Response
    Response: Harvey Faggins
    I found a great...
  • Response
    Response: Desmond Sallies
    I found a great...
  • Response
    Response: Nenita Pheasant
    I found a great...
  • Response
    Response: Reginald Corbell
    I found a great...
  • Response
    Response: Evan Frumkin
    I found a great...
  • Response
    Response: Lelia Muhlhauser
    I found a great...
  • Response
    Response: Chet Telgen
    I found a great...
  • Response
    Response: Van Gundersen
    I found a great...
  • Response
    Response: Rosia Bromwell
    I found a great...
  • Response
    Response: Alicia Maka
    I found a great...
  • Response
    Response: Pamela Deardorff
    I found a great...
  • Response
    Response: Anne Bart
    I found a great...
  • Response
    Response: Marvel Murawski
    I found a great...
  • Response
    Response: Amie Killam
    I found a great...
  • Response
    Response: Nathanael Treister
    I found a great...
  • Response
    Response: Muoi Scipio
    I found a great...
  • Response
    Response: Sol Mhoon
    I found a great...
  • Response
    Response: Lucio Rasul
    I found a great...
  • Response
    Response: Awilda Morowski
    I found a great...
  • Response
    Response: Dorothea Zaneski
    I found a great...
  • Response
    Response: Lee Corolla
    I found a great...
  • Response
    Response: Fidela Palfreyman
    I found a great...
  • Response
    Response: Timmy Thatcher
    I found a great...
  • Response
    Response: Paulene Boswink
    I found a great...
  • Response
    Response: Trista Antoine
    I found a great...
  • Response
    Response: Laraine Heally
    I found a great...
  • Response
    Response: Melvin Vashon
    I found a great...
  • Response
    Response: Dino Orpen
    I found a great...
  • Response
    Response: Tyron Socia
    I found a great...
  • Response
    Response: Elvin Vair
    I found a great...
  • Response
    Response: Barbra Mccovery
    I found a great...
  • Response
    Response: Fabian Barillari
    I found a great...
  • Response
    Response: Arica Reddinger
    I found a great...
  • Response
    Response: Norris Mince
    I found a great...
  • Response
    Response: Terrell Journey
    I found a great...
  • Response
    Response: Hana Woodhouse
    I found a great...
  • Response
    Response: Olivia Katos
    I found a great...
  • Response
    Response: Terence Muckerman
    I found a great...
  • Response
    Response: Nereida Mcalvain
    I found a great...
  • Response
    Response: Darron Legate
    I found a great...
  • Response
    Response: Tangela Arnoldy
    I found a great...
  • Response
    Response: Ted Simonds
    I found a great...
  • Response
    Response: Whitley Cunnigham
    I found a great...
  • Response
    Response: Trevor Celuch
    I found a great...
  • Response
    Response: Cruz Mccarvill
    I found a great...
  • Response
    Response: Jesusa Frietas
    I found a great...
  • Response
    Response: Lindsey Machey
    I found a great...
  • Response
    Response: Jonnie Brigges
    I found a great...
  • Response
    Response: Candyce Ervay
    I found a great...
  • Response
    Response: Caleb Goodwine
    I found a great...
  • Response
    Response: Xavier Bridgham
    I found a great...
  • Response
    Response: Hobert Rivers
    I found a great...
  • Response
    Response: Corinne Schweigert
    I found a great...
  • Response
    Response: Keiko Weissenbach
    I found a great...
  • Response
    Response: Clayton Bainter
    I found a great...
  • Response
    Response: Charissa Lejman
    I found a great...
  • Response
    Response: Hyman Vuyovich
    I found a great...
  • Response
    Response: Willard Korewdit
    I found a great...
  • Response
    Response: Emelda Oakman
    I found a great...
  • Response
    Response: Dannie Farson
    I found a great...
  • Response
    Response: Reda Bartee
    I found a great...
  • Response
    Response: Taisha Bhatt
    I found a great...
  • Response
    Response: Sergio Mickens
    I found a great...
  • Response
    Response: Weldon Odermott
    I found a great...
  • Response
    Response: Peter Trame
    I found a great...
  • Response
    I found a great...
  • Response
    Response: Ursula Fedorko
    I found a great...
  • Response
    Response: Marianna Patches
    I found a great...
  • Response
    Response: Jonna Kutchar
    I found a great...
  • Response
    Response: Omar Baum
    I found a great...
  • Response
    Response: Reggie Valladao
    I found a great...
  • Response
    Response: Reel Carts
    I found a great...
  • Response
    Response: Bella Vita
    I found a great...
  • Response
    Response: vagifirm pills
    I found a great...
  • Response
    I found a great...
  • Response
    Response: Chet Dey
    I found a great...
  • Response
    Response: Robt Lenderman
    I found a great...
  • Response
    Response: Brant Kosen
    I found a great...
  • Response
    Response: Terence Perng
    I found a great...
  • Response
    Response: Cary Perilloux
    I found a great...

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>