Luxoft, a provider of advanced application and product development services, has issued its predictions for the outsourcing industry in the coming year. The current state of the economy has hit hard many industries and business, forcing them to rethink their outsourcing strategy and budgets. Taking the current economy and future expectations into consideration, Luxoft has compiled its insights for the outsourcing industry in 2010.
The company believes that 2010 will mark the beginning of the economic recovery. The demand for IT outsourcing services will continue to rise with an increased number of outsourcing deals in the second half of the year. Nevertheless, management tactics that were used during times of economic hardship will remain applicable.
‘More for Less’ Outsourcing Approach to Continue into 2010
2009 has been a year of significant budget and staff cuts to keep revenue from dropping drastically. With the volume of work remaining the same, organisations are faced with tremendous pressure to stay competitive and achieve the best possible value from all initiatives – all with limited IT budgets. Outsourcing is being used to enable business growth under strict economic conditions. Achieving ‘more for less’ became a trend that will continue into 2010. It has led to adoption of more mature service models, where the service provider is expected to take on more responsibility and risk. Complexity of outsourced projects is rising with more core work being outsourced, faster turnaround times, and domain expertise becoming a ‘must have’.
Tight Budgets Dictate Increased Transparency
2010 will bring on a slow increase in IT budgets; however they will remain under tight control. To help control budgets, outsourcing clients will demand more line of site and visibility into projects. By increasing their knowledge of the day-to-day activities on the project, clients will be able to make decisions faster, increase the workflow and ensure budgets are met. Sourcing contracts and projects will also be fast tracked for quicker turnaround times and more precise actions, contributing to a manageable bottom line.
Change of Focus and Incentives
In the current economic environment, companies will shift their focus away from long-term contracts to project-based assignments that will deliver tangible results within a shorter timeframe. In the process they will also consolidate their vendor portfolios, turning to a short list of strategic vendors versus employing hundreds of different vendors. By becoming more strategic in their vendor choices, companies will be able to ensure projects are in line with company expectations and deliverables. Outsourcing providers who can link business and IT strategies and plans will come out ahead. Results will be the main focus of payment, not the effort put into each project.
Location, Location, Location
Eastern Europe will remain a premium nearshore destination for European clients. Strong engineering talent combined with ease of travel, cultural affinity and closer time zones make eastern European vendors a more viable outsourcing option. Quality of work, especially for complex outsourcing assignments, will keep Russia as a premier destination for that segment.
‘Recession-proof’ Vendor Attributes
Luxoft recently polled a selection of its customers to determine if the current state of the economy has caused changes in the client’s expectations for their vendors, as well as any changes in the service provider selection criteria. Despite cost cutting pressures, technical skills and cultural fit were determined to remain a top priority when choosing an outsourcing provider. In addition, thought leadership is becoming increasingly important and is quickly being considered a key requirement alongside technical and industry expertise and price.
‘Curve Out’ Deals
‘Curve out’ is a new type of outsourcing deal that is currently emerging on the market and will grow in the year to come. It involves outsourcing of an entire product or service unit. A company might shut down a particular operation to remain cost competitive, but want to keep it in its portfolio. An outsourcing vendor would then be invited to take over the operation, while providing a competitive, well-balanced pricing structure. This formula plays out well both for the client and the vendor: the client is able to retain the operation, at the same time allowing the vendor to commercialise it for its own purposes.
‘Hot’ Areas for 2010
Next year there will be a few key areas that will increase demand for outsourcing services. Investment banking is a very dynamic industry with a number of new government regulations being imposed upon companies at a rapid pace. Due to this increase in regulations, many of the systems currently in place will have to be changed in accordance to these new standards.
Another ‘hot’ area for 2010 will be in the energy field. With the notion of ‘smart-energy’ becoming vastly important in the next few years, the demand will rise in the area of renewable energy technology development. Companies that possess expertise in the development of smart devices will be ahead of the game.
2010 will be the year of technological advancements in the social media space as well. Luxoft predicts less restrictive social media application programming interfaces. More and more social media companies will be allowing developer companies to make use of existing functionality. Thus, there will be a whole new wave of mobile and web applications that will add on to the functionality of social networks. These new applications and platforms, along with further improvements in RFID tags and natural language rocessing technologies, will bring the world of social media onto a higher level.
Cloud computing, especially software-as-a-service (SaaS) applications and cloud platforms from Amazon and Google, will establish itself as an important platform for the outsourcing industry. Many companies are already increasing their use of cloud computing and will continue to expand these services as more companies realise the cost cutting benefits of working in the cloud and how it can aid their recovery from the economic crisis. Cloud computing is going to become increasingly important for the outsourcing industry in the areas of client-vendor relationships and communications.
An accelerated shift to business process driven software architectures, such as service oriented architecture (SOA) will demand outsourcing companies establish hi-end practices around off-the-shelf component suppliers in the areas of middleware, business process management (BPM), business intelligence and specifically in-memory analytics and data integration. Emerging technologies that enable real-time, automated decision support, such as complex event processing (CEP), will become more widespread and will promote new types and methods of designing software systems that require tighter understanding of business domain and the ability to work with business decision makers.
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