Thursday, January 10, 2008

Outsourcing Market Will Remain Robust in 2008

Source :

IT outsourcing deals don't garner the splashy headlines they did just two or three years ago, but that doesn't mean enterprise customers are suddenly averse to turning to outside providers for help with their most important technology projects.
In fact, according to Gartner, worldwide outsourcing spending will grow about 8.1 percent this year to $441 billion, up from $408 billion in 2007.
But rather than locking themselves into multi-year contracts with one vendor like IBM, Accenture or EDS, more and more CIOs are taking a buffet approach, signing several smaller-sized deals with multiple providers that can deliver specialized products and services that address specific business objectives.
The emergence of the software-as-a-service model (SaaS) (define) is also playing a pivotal role in changing the way companies evaluate their sourcing needs, giving companies a viable alternative to traditional outsourcing providers and forcing these same vendors to either partner with or develop their own on-demand delivery model.
"SaaS is still in its infancy but it's fast becoming a viable option for a portfolio of services and software people are using," Kurt Potter, an analyst at Gartner, said in an interview with "We're finding that many companies are looking to SaaS options to minimize the customization that traditional outsourcing vendors and projects typically require. They're testing and adopting it in areas that don't conflict with other core architecture areas."
Gartner surveyed IT executives at 191 small-, mid- and enterprise-sized companies in North America to find out not only how much they plan to spend on outsourcing in the coming year, but how they're sourcing strategy and priorities have changed in recent years.
Most telling, according to Potter, was the fact that 65 percent of the companies queried now say they have a formal enterprise sourcing strategy in place. In 2005, Gartner found that only 35 percent of companies had developed a disciplined process and method for determining how, where, when and what to outsource for its disparate business units.
"That's a big increase," he said. "Basically, it all starts with each company's strategy. It defines how you're going to get these services. And we've found that it's more about the process than the price. If a company doesn't have the sources and needs them, it doesn't really matter what it costs. You still need it."
Developing strong IT governance structures and properly aligning either outsourced and SaaS-based projects with business objectives is crucial remain the biggest challenges for companies of all sizes.
"[We're] seeing our clients set up internal processes and applications to create a service model for other internal organizations to leverage," Hemant Ramachandra, managing director of BearingPoint's Technology Solutions unit, wrote in an e-mail to "This can be software-as-a-service or even application as a service. Setting up the right governance structure is critical to ensure that outsourcing is leveraged appropriately."
Last year, IBM extended its leadership position in IT outsourcing market share with 8.1 percent, followed by EDS and ADP at 5.3 percent and 3.3 percent, respectively.
Among vertical markets, the financial services companies outpaced manufacturing, government and health care, spending more than $186 billion in outsourced services and equipment in 2007.
"It's clear that outsourcing is a business tool that's not going away," Potter said. "But it may not be right for everybody."

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