January 22, 2013
Originally posted on NASSCOM
Peter Bendor-Samuel, Founder and CEO of Everest Group, talks about the future of outsourcing and global services. Peter will be speaking at the NASSCOM India Leadership Forum 2013.
Q: What are the key trends and drivers of the outsourcing industry today?
I see three key trends emerging. The first trend has been in place for some time, and it is the continuing efforts of many enterprise IT and Shared Services organisations to drive greater standardisation and simplification in order to reduce cost and complexity. These initiatives often utilise increased levels of automation as a key lever and many times are combined with system integration rationalisation projects. These types of initiatives present new opportunities for service providers. As a result they can disrupt the status quo of the service provider ecosystem, redistributing work and opening opportunities for new providers. New technologies and service delivery models are often used in these efforts. One increasingly common example is the move to the private Cloud of data centers. In many cases, companies are applying virtualisation technology to increase automation and achieve a more standard, efficient, and flexible environment.
The second trend is the change in portfolio rationalisation that is occurring in some of the leading consuming enterprises. For the last five years, there has been a secular trend to reduce the number of service providers within a portfolio, and this trend is still playing out in many firms. However, the Everest Group has noted a distinct disparate trend in which many of the leading and most mature consumers of outsourced services are seeking to add one or more strategic service providers to their portfolios. It appears that these firms have completed their consolidation journey and have found strategic gaps that they are now seeking to address.
The third significant trend is the growing influence of stakeholders who are outside of the enterprise functions of IT and Shared Servicers. ‘Business stakeholders’ are increasingly initiating, funding, and taking responsibility for third-party contracting in many of the transformational opportunities in today’s market place. Given the growing importance of the transformational opportunities to the service community’s growth prospects, this trend is potentially the most challenging.
Q: Why do companies need to outsource? What is the value they can derive from outsourcing in today’s transformed business landscape?
The fundamental reasons to outsource have remained consistent throughout the years. The foremost reason is to reduce costs. Other reasons include a desire to access additional resources and talent or to lower cycle time and reduce time to market.
Q: How would you rate India as a sourcing destination? Will the country be able to sustain its global edge in the years ahead? What are the threats and opportunities?
India maintains its position as the most important destination for services work in the global economy. Although other locations continue to participate in this marketplace, India’s role is central and its importance undiminished in providing competitively priced global services and its importance is undiminished. I see no real threats capable of challenging India’s current role. The significant opportunity for the Indian firms is to garner a greater share of the business transformation work. India is well positioned to continue to play an important role in the simplification trend.
Q: Is domestic market an opportunity?
The domestic Indian market continues to be a vibrant opportunity for service providers as the Indian economy continues to expand and mature. The need for third-party services will only increase in both size and sophistication.
Q: After outsourcing what? What will the next generation of global services look like?
Significant disruptive trends are positioned to reshape portions of the services market. One such prominent trend is the Cloud and ‘As-a-Service’. These offerings have already started to reshape segments of the ITO and software services market. India and India-based firms are well positioned to play an important role as system integrators and talent factories. The disruption that theses service model shifts create will drive the market.
Q: What would you say are the pros and cons of outsourcing today? Has it started making less sense for governments and more sense for businesses?
Outsourcing and third-party service providers continue to grow in importance. Although we hear significant rhetoric about the industry changing direction, the overall trend to leverage third parties to provide services and functions continues. The feared loss of arbitrage in traditional delivery markets, such as India, has been overstated. Arbitrage appears to be healthy and well, with further available opportunities across markets. Nevertheless, the rate of growth for arbitrage-based markets is maturing and will continue to slow through the years.
These trends are unevenly distributed across business and government segments. Some governments continue to embrace third-party providers whereas other governments, such as the federal portion of the United States, are less interested in offshore solutions and are placing more emphasis on domestic sources.
