Talking IT Outsourcing

This is the firstÂ in a series of regular articles on outsourcing and technology that I’m going to be contributing to SSON. I’m focused on the trends and changes in the industry and what you should be looking out for in the months ahead – particularly in ITO.The biggest change we have all observed in the past year has been the change in sentiment from customers, because of the chaos caused by the global economic slowdown. I know from my own business that I spent 2009 talking to potential clients, who were all getting slowly more confident about the economy and as we passed into 2010 a tidal wave of contracts were commissioned.So that sounds good, but just take a look atÂ BusinessWeek magazineÂ from a year ago – what a different story. One year ago, the business press was talking about a ‘perfect storm’ centred over India because clients were scrapping discretionary IT project spending. I remember being surprised to find large investment banks with travel bans at that time – even though they were running huge IT development centres out in India. Project management had to work by phone – or just fail.But a year is a long time in business and though this recession was deeper and more severe than anything any of us will have witnessed before, there is positivity in the press. In theÂ PhilippinesÂ they are seeing their own BPO industry expand by fifty per cent.And the latest survey byÂ Gartner on ITÂ spending in India shows a healthy 14 per cent increase predicted for 2010. That’s great news for the IT suppliers in India, though it’s tempered somewhat by an observation from the analystsÂ OvumÂ that we are heading for the same old issues of increasing pay demands from techies and attrition as they all start quitting their jobs with the renewed confidence that better salaries are out there.Wipro is already observing attrition amongst staff of 17.1 per cent, and they are handing out fresh pay rises in order to keep the people loyal, but as the market in general gains confidence, so do the IT experts, becoming more footloose and in search of a better deal for their expertise.In a sense, what we observed during the recession was a natural and predictable slowdown in outsourcing. As the storm commenced in 2008, there were offshore suppliers rushing around and talking of the savings to be had by going offshore quickly – as if a hurried deal to an offshore supplier in the midst of a recession could help anyone.That predicted offshoring trend never developed. Though it can certainly be cheaper to run IT from offshore, everyone in the industry knows there are upfront costs associated with the transition to a new business state. Training, travel, knowledge transfer – all those processes cost money up front in order to reduce the ongoing run rate later. And what’s the first thing to go in a recession? Discretionary project spend, so most IT outsourcing projects bit the dust.In 2008, any CEO worth his or her salary was focused on reviewing strategy, revising budgets, and reducing unnecessary headcount – not outsourcing the technology department to the other side of the world.But now confidence has returned, outsourcing is back on the agenda again, but in a slightly different way. There is a trend to reduce the number of suppliers being used, to make life less complex. There is an even greater expectation on offshoring to reduce cost – far more than before the recession, and there is a complete review of any existing contracts with the emphasis on driving down agreed rates.For the IT suppliers it almost feels like business as usual, but it’s not quite. The new breed of ITO customer wants more for less and is not quite so forgiving anymore. As our friends in France say, plus Ã§a change…About the Author Mark Kobayashi-Hillary is a writer and blogger well known for books such as ‘Who Moved my Job?’ and ‘Global Services: Moving to a Level Playing Field’.Â Mark regularly blogs on outsourcing for silicon.com and social media for Computer Weekly. Mark was recently teaching children about globalisation by blogging for the UK government Department for Children, Families, and Schools and he was asked by Reuters to ‘live blog’ the entire 2010 UK general election.www.markhillary.comÂ

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