Call Center Services, Outsourcing Services, Outsourcing Projects
“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change”. Charles Darwin
2009 has been a year of significant budget and staff cuts to keep revenue from dropping drastically. With the volume of work remaining the same, organizations are faced with tremendous pressure to stay with limited IT budgets. Under the aspect of doing more for less, companies will choose to outsource in order to enable business growth - driving out cost and creating new avenues of possibility. The demand for IT outsourcing services will continue to rise with an increased number of outsourcing deals in the second half of the year. IDC is forecasting 3.2 percent global IT spending growth, returning to 2008 levels of some US$1.5 trillion, with emerging markets driving more than half of the projected growth. Despite of the growing market, 2010 will bring also some changes in this industry. The outsourcing providers are forced to reinvent themselves in order to be competitive and to keep their market shares. Also as an effect of the consolidation of the market we will see some mega mergers.
Change leads to innovation
The McKinsey 2008–09 survey of the global IT outsourcing and outsourcing industry shows that outsourcing suppliers are redefining many traditional management practices; changing the model for offshore services, by focusing on the quality of services delivered rather than the usual benchmarks of costs per offshore hire. The rules of the game in IT offshoring and business process outsourcing are in motion as a structural change is occurring in the offshore sector. The new offshore model will involve highly skilled workers performing a range of strategic tasks and new organizational forms that place greater value on partnerships and managing talent. Another report, this time signed by PAConsultants defines the Outsourcing 2.0 concept. Different from the classic outsourcing, the new concept aims to maximize the added value for customers through the cost-effective and flexible provision of end-to-end services. Indeed, it has been a long time since we no longer believed in the traditional model of IT service companies which have a business based on Time & Material contracts only. Except for some specific areas, extremely demanding, or very secure, customers no longer want this. In Pentalog, only approximately 10% of the staff is still working with this antiquated system and this represents only 17% of our sales. The French IT services, as a business model, are primarily a result of… the French labor code. But beyond this convictions, which have been developed over time the world of IT is now ONLY talking of industrialization. The small and medium size players, the intellectually lazy, and the cohorts of those who do not know how and or do not want to invest, see their profit margins shrivel, and many of these companies may be excluded from this market. Over the past two years many have started to make changes, and there are many who still remain, but the timetable for change has become smaller, as well as the financial resources necessary to take action. We think that this important revolution is not yet complete, and another one is coming which will not pull any punches and could create other problems which could touch system infrastructure services also and thus eliminate entire pages of purchase orders for IT services companies and integrators. We are talking about the Cloud, SAAS and with their numerous derivatives.
About cloud computing and other hypes
Cloud-based services can be exploited in a variety of ways to develop an application or a solution. Using cloud resources does not eliminate the costs of IT solutions, says Gartner, but does re-arrange some and reduce others.
The integration costs will suffer large reductions, which could reach 60%, and the same for development industry. Many companies will not dare taking the next step. It is not essentially a financial problem, but one which will rather demand an intellectual effort to resolve. Indeed if SAAS is essentially a matter of mutualization, Cloud Computing means literally virtualization in the strictest sense of the meaning. Many companies will find it difficult to offer support and advice to their clients with all the newcomers who are not like the older players. Whole sectors of the IT organization could be revolutionized. This will happen especially in CRM and obtaining new customers. The disappearance of intermediaries is close at hand. This cornerstone, the concept of distribution is about to change. The sale of software will level out too, between producers and customers. The added value will therefore have to be based on higher level services.
BPO will grow in 2010
Over the past few years, the concept of BPO has been linked ever more closely with traditional IT functions. Business processes of all kinds have used IT as a tool for highly available, secure, and flexible provision. For many companies, especially those which have already outsourced much of their IT, the next wave of cost-savings are to be found in BPO areas. Finance and accounting BPO will have a resurgence in 2010, with additional interest in management reporting, if the trends from to 2009 continue.
Again about the location…
IAOP considers that as new destinations emerge, the competition among outsourcing providers will intensify, leading parts of the world – particularly the BRIC nations – to differentiate themselves through professional certification. Rising geographies in Central and South America will take market share away from traditional outsourcing locations, such as China predicts IAOP. EquaTerra notes that India will continue to dominate as an offshore outsourcing destination. Everest confirms also India as a top destination but notes that the country's IT service providers will experience a growth revival that could lead to spikes in wage inflation and attrition. To balance those trends, vendors will continue to move work to tier two cities, such as Pune and Chennai. The Philippines remains the second largest provider of offshoring services ( A.T. Kearny Global Services Location Index 2009)- together with India they account for 50% of the business process outsourcing of the world. Because of the knowledge, skills and cultural affinities, Eastern Europe will remain a premium nearshore destination for European clients. The quality of work, especially for complex outsourcing assignments, will keep Russia as a premier destination for that segment. For 2010 Pentalog is planning to invest in three new offshore locations: India, Tunisia and Russia (we will come with more insights in the next posts).
The global economic recession, currency fluctuations and other market forces will encourage increasing levels of mergers and acquisitions on a global basis, particularly among service providers.
”This consolidation of outsourcing providers will drive higher value services and continue to put pressure on other players to be more strategic in their offerings”, says IAOP. Everest predicts that most consolidation in 2010 will focus on acquisitions of "adjacent and complementary capabilities across functions, verticals and geographies," as opposed to mergers solely to increase scale.