CIO’s review of IT outsourcing market in 2012

At the end of 2011, CIO magazine had predicted a couple of things for 2012 such as the end of cloud computing hype, migration of app development from offshore to in-house, relationship-oriented IT service providers and so on. At the end of 2012, CIO reviews its previous year’s predictions about the IT outsourcing market. A perusal of CIO’s predictions for the IT outsourcing market in 2012 and their evaluation at the end of the year has been done.

CIO’s predictions for 2012 those were dead on target

Lukewarm M&A activity will be seen in 2012

There weren’t many earth-shattering mergers and acquisitions happening in 2012. Service providers acquired smaller service providers. Most of the service providers focused on making better deals with buyers. IBM was in the news for its acquisition of 8 medium-sized companies with various domain expertise which the company is expected to make use of throughout its enterprise.

IT service buyers place importance on business outcomes rather than labor arbitrage

Outsourcing customers began to stress on business outcomes with labor arbitrage moving down the priority list. However, vendors haven’t been able to deliver primarily due to lack of innovation and significant process improvement. However, some service providers did start offering flexible terms.

Companies disperse outsourcing portfolio beyond India

India is no longer the center of low cost operations of certain services. The companies have begun dispersing their outsourcing activities geographically. The reasons may be to decrease geopolitical risk, diversify operations and also tap new potential. However, India is still the holder of a majority of this market.

it-outsourcing-review-2012. source

CIO’s predictions for 2012 that did not hit the mark

The cloud hype will die down

This has been grossly off the mark with the hype about the cloud only increasing. Suppliers stress that cloud computing will increase meaningful savings and that security risks are not high. Adoption rates have been a little less though.

Offshore IT providers will dominate infrastructure outsourcing

Some of the IT service providers in India such as Wipro and HCL have been gaining significant foothold in infrastructure outsourcing. However, there has been no tremendous shift from US infrastructure outsourcing providers to offshore providers.

IT service providers to focus on relationship-based approach

The account managers are still in place as opposed to a more relationship-oriented approach. . Function and industry-literate management has been very slowly implemented.

Application development to move in-house

Application development activity moving to the domestic arena has been very minimal. Outsourcing customers still demand cost savings from their programming partners. Even though there are efforts afoot to establish cost-effective sites in U.S., it is not expected to make much impact.

CIO’s predictions for 2012 that are still in the ‘wait and see’ mode

Outsourcing buyers slow down their pace

Buyers have not been making major deals with service providers due to the weak economy, reluctance towards big changes, political uncertainty etc. However, renegotiation of existing deals has been made on a stronger scale especially by including new services in the deals.

Outsourcing deals become small

Smaller deals were prominent in 2012, but the trends in 2013 and 2014 have to be observed in order to say whether buyers favor breaking up larger deals over smaller deals.

More backsourcing talk and less action

Organizations have begun realizing that the gap between offshore and onshore talents can be advantageous for some operations. Buyers have begun experimenting with integrating onshore and offshore talents. A meaningful development of a strategy for domestication of sourcing will need years to play out. GE made headlines with it promising to hire about 1,300 engineering and IT professionals to AMSTC (Advanced Manufacturing and Software Technology Center) in Michigan, by the year 2013.

IT outsourcing providers implement riskier models

Adopting riskier models saw a lukewarm response. Only some providers decided to follow this path probably to win deals over the competition. However, severe pricing tactics were implemented by the providers.

IT security rises in prominence

Privacy as well as security is prime concerns of buyers with organizations focusing more on this area. However, this comes at the cost of increased operational expenditure and slower evaluation.

It has been interesting how CIO’s predictions for the IT outsourcing market in 2012 played out with some of them springing surprises. 2013 promises to be an equally eventful year for the IT outsourcing market with some of these predictions to be panned out in the coming years too.

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