Top 10 IT outsourcing stories

IT outsourcing has had a big year. The increasing maturity and acceptance of cloud-based services has shaken up suppliers.

With technology such as the cloud and automation software able to reduce the need for more people and driving prices down, suppliers are attempting to increase their non-linear business to reduce reliance on just providing full-time equivalents.

At the same time, customers are looking to harness these new technologies, but many lack the resources. This might appear a perfect storm but other trends include the increasing appetite for large companies, like Astrazeneca, to bring services back in-house. In this case the company has established global delivery centres to give it the resources it needs, while retaining control.

Here are Computer Weekly’s top 10 IT outsourcing stories of 2014.

1. IBM India staff reductions are sign of shift in outsourcing sector

Talk of IBM reducing its India-based workforce by 50,000 over the past three years, with more to come, is a reflection of the diminishing importance of low-cost operatives.

The reported reduction in staff in India, although unconfirmed, is in line with changing IT-outsourcing demand and delivery models. One source claimed India’s Tata Consultancy Services is now IBM Global Service’s biggest competition.

2. Mature Indian offshore IT services firms take larger chunk of market as US giants collapse

India-based IT services firms increased their share of the total contract value of UK private sector IT and business process outsourcing contracts from 4% to 25% in a five-year period at the expense of large US-based service providers.

This is happening in all mature IT services markets. Fears that offshore services represent a security and continuity risk, and are just a form of labour arbitrage, are evaporating.

3. How will Indian IT services firms evolve and prosper?

Indian IT services firms need to reshape their businesses if they are to continue to grow at the rates experienced over the past decade, as traditional markets and service offerings reach maturity.

Research over the past 10 years from the Information Security Group revealed an increase in global market share of 13% for Indian IT services firms, compared with a decline of 7% for their multi-national equivalents.

4. HP should use split to make up lost ground in IT services

When HP acquired Electronic Data Systems (EDS) for $13.9bn in 2008 the scene was set for the IT giant to challenge IBM in the IT services sector, but little has happened to cause IBM to look over its shoulder.

After thousands of redundancies and an almost $9bn write-down, EDS is a shell of its former self. General Motors’ decision to bring its outsourced IT back in-house in 2012 was a high-profile example of the blows HP’s service division had to take.

5. UK government failing to break large service providers’ dominance

Large UK service providers are strengthening their grip on the public sector purse, despite efforts by the government to offer contracts to more suppliers.

The UK government’s attempts to spread its business services spending to more suppliers have so far failed, according to research from the Information Security Group, with small and medium-sized suppliers in the UK and overseas alternatives being overlooked.

6. IBM bags billions of dollars in IT services deals in a matter of days

IBM won deals worth $3.6bn, with advertising giant WPP the latest to ink a billion-dollar deal.

The seven-year contract worth $1.25bn will see WPP, which last year reported revenue of more than $17bn, put digital services on a hybrid cloud managed globally by IBM.

7. European firms satisfied with IT infrastructure outsourcing but priorities are changing

Although 60% of European businesses are satisfied with IT infrastructure service providers, their focus is switching from cost reduction to services that will help them increase sales and provide a better customer experience.

In a study by Forrester Research, 71% of IT infrastructure service buyers cited revenue growth and improving the customer experience as priorities for deals, while 66% said cost reduction was a focus.

8. AstraZeneca takes in-house transformation offshore

The opening of an IT service centre in Chennai announced in February 2014 kicked off AstraZeneca’s bold insourcing strategy and its focus on a trend that is seeing large businesseses invest in global delivery operations.

The Chennai operation will start with 60 employees and increase to 300 in its first year. It will be focused on SAP, infrastructure operations, application development and maintenance, as well as cloud and mobile.

9. Asia dominates as outsourcing location and India remains unrivaled

India is still the best place for businesses to outsource services and is unrivaled in its scale and availability of skills, according to AT Kearney’s latest index, which ranks business services locations.

Asian countries dominate the management consultancy’s index of the top 50 global locations, with six of the top 10 in the region.

10. IT services firm achieves non-linear growth through automation

Scandinavian IT services firm Cygate has expanded its business without needing to recruit more staff by using automation software from IPSoft.

In 2010, the company, which serves more than 1,000 customers including some of the biggest corporates in the Nordic region, was experiencing 20% growth in sales. This meant the company needed to add resources or risk service levels deteriorating. But just adding manpower would have reduced its margins.

Source:  computerweekly-Top 10 IT outsourcing stories by Karl Flinders

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