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IT Outsourcing At the Cross Roads

By ES outlook


Outsourcing is a huge industry that has been providing jobs to millions around the world and increasing the profit margins of companies world-wide. Due to the growing surplus of potential employees in the outsourcing market and the growing technology which has rendered IT outsourcing much cheaper, the market is now facing a fierce competition not seen in quite a while. This price war has made this year a buyer’s market for IT providers around the globe.

Information Services Group (ISG) research predicts that over $100 billion worth of contracts will be re-negotiated in the next two years causing the competition to get even tougher in the market. The widespread usage of modern technology could be directly attributed to this sudden decline in the demand for labor. Jeff Augustine of Alsbridge says To a large extent the price wars reflect the growing impact of robotic process automation, autonomics and cognitive computing.” According to Augustine this involvement of automated services in most industries has caused outsourcing costs to go down 40 percent. This has provoked providers to cut costs in parts of the industry that require manual labor. The provided are now looking for faster and more efficient ways to maximize profits with the help of automated services.

Automation coupled with Cloud technology has the potential to yield heavy profits for companies like Google, Amazon and Rackspace who have the upper hand in this situation. With the declining outsourcing market broad cloud adoption could be a possibility for these companies. The IT Providers that may have a chance in this environment are the ones that ready to adopt a new business models that can adapt with these changing industry. Steve Hall a partner at ISG adds, “The real differentiator is the provider’s strategy and readiness to adopt automation and newer operating models.” He also adds that with the trend of digitization spreading through the market, the providers have a good chance to bounce back in the market. This also presents a very good opportunity for IT techs with skill in the application space, due to the need for a massive amount of software.

While IT buyers may get services at a cheaper price with a promise of better efficiency this war may expose the buyers to other risks. One such potential risk could be the still under development automation services that have not yet been fully tested. Potential clients must be careful before they buy long term services, because in this market they could easily be stuck with the IT provider’s ‘C-team”, with no way out.

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