Forces That Will Impact The IT Service and Outsourcing Industry

by HSG on Mar 10, 2014 in Articles from Software Fans

Globalization
Globalization is the fundamental force changing IT service delivery and business's competitive activities in almost every vertical market — and thus economies — in some way, shape or form. One might say that globalization is not a new trend and has been commonplace for quite some time now. Yes, but with the changing economic environment globalizations has special implications for the IT outsourcing industry. With developed countries like the U.S. keeping a strict eye on generating local jobs, IT outsourcing especially in Asian countries such as India and China is expected to see globalization brining in big shifts in business strategy

Potential Impact of Globalization

·         Increase in near shoring in addition to outsourcing. Near shoring essentially refers to existing IT companies setting up development/delivery centers in Nordic and South American regions in order to offer same time zone services and also bypass the laws governing local hiring

·         A truly global delivery model. Service delivery models will have to become more efficient and flexible and work well even if service teams spread across continents

This will mean that large IT outsourcing companies such as TCS will have to expand their presence globally from just having sales offices to actual delivery teams shipping out solutions.

 

Hyper-digitization
Digitization is no more a fad or a technology trend restricted to consumer space. Even the enterprise space is increasingly getting digitized. Digitization describes the parts of the economy in which the "product" or "service" is content that is entirely, or almost entirely, digital. It is estimated that economic output of hyper digitization is $2.9 trillionalready and is only expected to grow going forward. With more and more business going digital, the demand for IT outsourcing is going to align itself with the trend as well

Potential Impact Of Hyper-digitization

·         Mainstream adoption of technologies like Service Oriented Architecture (SOA) will gain steam

·         Digital Asset Management and Social CRM solutions would gain traction as businesses increasingly look to tap into digital and social channels

IT service and outsourcing industry incumbents will have to invest in developing expertise in these areas to ensure they are placed strategically to benefit from hyper-digitization

 

“Cloud”-ization

Gartner definescloud computing as “a disruptive phenomenon, with the potential to make IT organizations more responsive than ever”. Partly due to hyper-digitization and in part due to cloud computing, there has been a paradigm shift in how IT services are now delivered. Scalable cost-savings aside, businesses are now increasingly realizing the benefits of cloud based technologies. However, the real impact of cloud technologies that buyers/users of IT services can now focus on what the service offers them instead of how the service is implemented.

Possible Impact of Cloud technologies

·         From a business side, IT service and outsourcing firms might start seeing a decrease in traditional service contracts involving large scale ERP implementations/customizations as customers start adopting standardized cloud based alternatives that do not require complex implementation

·         The subscription based pricing in Cloud computing might also start the trend of buyers expecting subscription based pricing and flexible contracts for traditional IT services too

IT outsourcing vendors will have to develop new business models in order to inculcate flexible pricing models. Companies that stick to the traditional way of doing business might start losing market share fast. IT outsourcing companies might also do well to start building partnerships with leading cloud based software makers such as Salesforce, Workday etc. in addition to their existing partnerships with vendors like IBM, Oracle etc.

Data Analytics and Business Intelligence

Thanks to hyper-digitization, the volume of data generated has grown multi-fold and continues to grow. This poses a huge challenge for organizations to process the data to generate true business insight that can then enhance the organization’s ability to compete in its market. As a result, Business intelligence, analytics, pattern recognition, and "smart" solutions are going to become the new vocabulary of IT's value; new IT-related initiatives that don't tie in with data analysis approach might become less valuable for organizatations.

Possible Impact:

·         IT Outsourcing companies will have to invest in developing capabilities around Business Intelligence as more and more buyers of IT are going to expect their IT suppliers to not only implement business intelligence solutions but also help them IT enabled data stratregy

·         IT outsourcing companies might benefit from adding data analytics in its core DNA and use data driven insights to identify trends and pattern that can help them shape growth strategy

IT service organizations might have to consider hiring true data scientists in addition to going after technical talent to ensure that they can offer the best data science and technology offering to its clients

 

Modularization

More elements of IT can be regarded as a component (definition: a constituent part; element; ingredient) of a larger, or broader IT application or system. The notion of reusable "objects" is gaining momentum as the Internet creates a "platform" on which users can configure prebuilt IT components rather than constantly starting from scratch for each new IT project. With Platform as a service (PaaS) and Infrastructure as a service (IaaS) becoming a reality, organizations are going to expect their IT solutions to be modularized and in turn be nimble to changes

Possible Impact:

·         Adoption of modular applications instead of pre-packaged applications

·         Increasing use of scalable and flexible technology including languages like (.NET, J2EE) etc.

·         Growing demand for configurable and customizable solutions

Modularization while mostly has technological implications, it will also require professionals such as System Architects to bring a change to their mindset while developing system designs and customized solutions for client’s problems.

HyperScaling/Hyper-verticalization
An after effect of hyper-competition, the IT outsourcing industry is interesting seeing two widely contrasting approaches to stay in business.

Hyper-scaling refers to organizations that can offer tremendous scale both in terms of the number of clients they can serve and in terms of the end-to-end solution offering they can offer

Hyper-verticalization refers to deep specialization into subvertical processes and is expected to become commercial success in the new arena of alternative services delivery. In essence, in addition to having the technology know-how, having domain based IT would enable IT outsourcing companies to differentiate themselves and offer solutions instead of just services

Potential Impact of Hyperscaling/Hyper-verticalization

·         Consolidation in the industryas large companies start looking to buying other companies to scale

·         Increasing uptake for IP based solutions like (FINACLE from Infosys)

So, IT outsourcing organizations might have to look for strategic M&A or considering developing in-house IP based solutions to stay competitive. The players in the middle would find it very difficult to stay afloat.

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