A Happy New Year of IT Sourcing

Happy New Year to all our readers! Before we jump fully into 2011, I’d like to take a step back and consider what the outsourcing industry has learnt in 2010 that can be applied in the new year: 

After-effects of the recession 

Outsourcing is a cost-cutting mechanism at its core. Lately we’ve seen a wave of “thought leadership” which claims that innovation and design complexity is what drives the site selection decision, but if buy-side clients have learnt anything from this recession, it’s that work should not be sent off-site unless it fundamentally cuts costs. Everything else is secondary. As country economies and firms slowly recover, the phrase for 2011 is cost efficiency. 

The move towards service integration and flexibility 

If firms are going to be cost-efficient, it requires a change in how they do business. One example of that is buy-side clients streamlining their outsourcing portfolios, or the number of vendors they deal with. We’re seeing them increasingly look for providers with an international presence and footprints in many different geographies. They can then distribute their work across those geographies according to each country’s area of expertise. 

Buyers also look for vendors that offer integrated solutions – in other words, a mix of BPO and ITO. Clients that work with pure-play BPO firms (firms that offer only BPO services) invariably have to turn to an external IT partner if the situation calls for it. That’s inefficient both in terms of cost and time wasted negotiating contracts. 

Large vendors offering this kind of service integration means that buyers only have to work with two or three of them to fulfill all their outsourcing needs. For the vendor, that results in a decrease in the number of clients, but an increase in the volume of service provided for each. Which means that clients have much more bargaining power with their vendors – and they’re using it to demand more flexible sourcing contracts. 

Cloud sourcing 

Nothing has generated as much excitement this year as the cloud. However in many cases it’s been a bandwagon that firms have jumped on without really knowing how to leverage it. What we observed in 2010 was that even though every firm is trying to offer cloud solutions, the technology necessary to make cloud truly effective in sourcing is lacking. The development of that technology is what we hope to see in 2011, in order to really bring out cloud’s best features – continuous software deployment, and pay-as-you-use solutions. 

Rise of the Nearshore 

This is a topic that I’ll discuss in more depth in coming months. Suffice to say that Latin America is emerging as one of the key parts of a diversified sourcing portfolio. Firms no longer head straight for India and China, but do some serious legwork in tech locations like Mexico, Costa Rica and Chile. We’ve seen many good fits, and more than a few disappointments as the region ramps up to meet the demand. One thing did change last year though, and that was the attitude of LatAm governments towards outsourcing. The payoffs are now apparent, especially in IT and software development, and most governments are implementing educational reforms and changing the business climate to attract high quality investment. It remains to be seen who will be successful. 

Once again, a very Happy New Year of IT sourcing to you!