Outsourcing Demand 2011: Growing but Continuing to Evolve and Diversify
Stan Lepeak, Managing Director Global Research
One key topic addressed in EquaTerra’s 4Q10 global Pulse survey, the results of which were released via a webcast on Wednesday, January 26, is predictions for the most impactful trends in the business and IT services marketplace in 2011. Not surprisingly, cloud computing overall – and in lieu of traditional outsourcing – rose to the top of the list, as did ongoing globalization of service delivery and challenging economic conditions driving more demand for outsourcing.
The growth and importance of cloud computing highlights another key finding from this and other recent Pulse surveys: outsourcing demand continues to grow, but in a much more diversified or fragmented manner. Traditional or legacy outsourcing – characterized by the allure of mega-deals, a focus on generic, horizontal IT, F&A and HR processes, lift-and-shift, highly customized and complex solutions and models, and often vague and open-ended business case goals – is on the wane.
Traditional outsourcing models are being replaced by, or evolving into, models with the following characteristics:
- Smaller in scale and scope
- Larger efforts and ambitions, pursued more incrementally
- Greater focus on more strategic activities and specific vertical industry services
- Greater focus on functional areas such as legal, research and development, and real estate and facilities management
- Greater standardization of offerings and platforms with a nascent but growing focus on cloud computing delivery models
- More realistic and tighter business cases
The business and IT service market has matured over the past five years. Much of the low hanging fruit (e.g., bloated IT organizations, legacy homegrown IT environments and excessive cost models) has already been picked through existing outsourcing efforts or via aggressive cost-cutting efforts that have occurred over the past two years. Quick and big wins via outsourcing are fewer and farther between. Buyers and providers are smarter, more experienced and less likely to enter into larger and more risky deals. Evolutionary innovations like cloud computing are changing the nature of what constitutes outsourcing.
Outsourcing buyers or service providers with legacy mindsets and operating models will find current market changes threatening and a long-term negative indicator. Similarly, if one views the outsourcing market through the legacy lens of traditional deals, models and providers, it is in decline. However, setting nomenclature aside for a moment, if focus and emphasis are placed on the means by which buyers can tap into party bundles of hardware, software and expertise (outsourcing at its core), the market is stronger than ever, albeit more confusing and fragmented for the next few years thanks to cloud and SaaS.
Outsourcing is indeed a dynamic innovation. It is constantly changing, depending on the need of those who are using it. In this streamlining era of business, outsourcing has slowly become an indispensable tool. Although it is not for everyone. Soon, everything will be outsourced.