12 IT outsourcing predictions for 2012

December 27, 2011: In 2011, the Information Technology outsourcing industry witnessed smaller deals, suspicious customers, IT service provider with reduced profit and a lot of discussion over cloud computing. It is expected that some of the trends that has been observed in 2011 will continue into 2012 as well. However there will be few new developments in IT outsourcing during 2012.

Following are the IT outsourcing trends that are predicted to occur in 2012:

1)      Mixed response from players in the case of M&A

It is predicted that the M&A activity will be confined to midsized players. Leading players will move away from large M&A activities. This is due to the shortage of attractive second tier service providers who are competent enough to deliver.

2)      Outsourcing buyers are cautious 

Most of the outsourcing buyers are likely to postpone their outsourcing decision in the wake of slowdown. It is predicted that one out of every four buyers will put a hold to signing of outsourcing contracts due to the fear of recession.

3)      Cloud computing to lose its glitter

In 2012 the much proclaimed cloud computing will lose its buzz. The IT leaders and managers will be looking at the risk and value associated with cloud computing. The IT departments will not adopt cloud computing without proper evaluation.

4)      Clients will want more from IT Service providers

Even though clients want cost reduction, they will demand for more in terms of flexibility, process improvement and innovation.

5)      Outsourcing service providers will concentrate on small firms

The focus is on small outsourcing buyers as service providers have wrung everything out of business leaders. Service providers will be looking to maximize their market share and will go even to the extent of cannibalizing their revenue through new pricing models based on usage and business outcomes.

6)      Service providers to focus on infrastructure outsourcing

In order to secure IT infrastructure outsourcing deals, the outsourcing service providers has been building infrastructure. It is as a result of their effort to go above application development and maintenance work.

7)      Account manages will have to value relationship rather than revenue

The account managers who have focused on increasing sales and thus revenue will have to pay attention to customer needs and build strong relation with them as customers are fed up the focus on sale approach by the service providers.

8)      Increased talk on backsourcing

The outsourcing market will witness more talks on bringing back the outsourced function and performing it in house and in most cases will fail to convert the talk into action.


9)      Service providers to adopt riskier models

The pricing pressure is set to reduce the profit margin of the service provider. In order to support growth and profitability, service provider will adopt new risky models which include joint ventures. 

10)  Secondary cities to house application development

With the companies realizing the potential cost savings, they will shift their work to secondary cities in the United States. The secondary cities will provide cheaper service and will be more advantageous to the companies.

11)   Security to gain more attention

It is said that the year 2012 will be a year of security and firms will search for new ways to protect their data and that of the customers

12)  Global companies to look beyond India

The leading companies will look for more options in terms of offshore destinations, not as a part of cost reduction, but to make use of local skills and expertise.

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