Friday, February 08, 2008

Growth in IT outsourcing creates market opportunities

Source :

Gartner predicts that the worldwide outsourcing market will continue to grow with a forecast growth rate of 8.1 percent in 2008. Australia is also expected to see this field strengthen by 4.7 percent to reach $10.9 million in 2008. While it may appear to be a positive outlook, Gartner maintains that these predictions do not imply that businesses won’t be faced with challenges.

“Although organisations often have fundamentally sound procurement departments to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives,” said Kurt Potter, research director at Gartner.

Specifically, Potter claimed that many companies lack the basic building blocks to achieve successful vendor management, expected cost savings and other benefits of outsourcing. According to Potter, in extreme cases the lack of needed trust and control to optimise the outsourcing relationship results in deal failure.

Gartner found that last year organisations had changed their focus and were no longer purely concentrating on saving money when considering outsourcing.

“In 2007, organisations focused less on outsourcing for cost savings than in previous years and more on using providers’ global delivery models to access the right skills at a reasonable price, wherever they are,” said Potter.

There were some sectors including publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) whose contract values decreased overall by 50 percent worldwide in 2007. According to Gartner, as outsourcing becomes more commonplace and the market matures, there is less publicity of deals. Essentially, organisations are outsourcing more, but electing to use a multi-power strategy and more small deals that are not significant enough to report in the media.

“In 2008, we expect to see some early adopters of multisourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers,” said Potter. “Because of multisourcing complexities often associated with handoff points between competing providers and unclarified vendor management processes, some organisations will consider prime-contractor outsourcing models or the appointment of new vendor management roles in their retained organisations.”

Last year, Australia reaped the benefits of outsourcing business growth for the many multinational and local as well as offshore service providers, according to Gartner research vice president Jim Longwood. The only concern for the future of this market is that the local workforce will not be able to handle the increased demand for outsourced projects.

“Australia is a mature market in terms of outsourcing, where enterprises are now signing second- and third-generation deals,” said Longwood. “Staff shortages for internal and outsourced projects are a growing problem in Australia and in most other countries in the Asia Pacific region including India, New Zealand, Thailand and even China for some specialised skills and experienced staff.”

Market opportunities are opening up in other countries as buyers are moving work to lower-cost, offshore delivery centres. Cost remains the key driver in the development of global delivery models; however there are users that are more concerned with better supporting their business needs.