Outsourcing growth to slow in 2008
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Plus, Gartner predicts the rise of utility computing
The global outsourcing market is to grow by a projected 8.1% in 2008, according to analyst company Gartner, down from a growth rate of 10.2% in 2007.
This growth dip comes in spite of the finding that cost limitation is, for many organisations, no longer the principle attraction to outsourcing.
“[In 2007] more organisations focused less on outsourcing for cost savings than in previous years and more on using providers' global delivery models to access the right skills at a reasonable price, wherever they are,” says Gartner research director Kurt Potter.
And, although the industry is in relatively good health, few organisations have yet developed the organisational expertise to effectively manage an outsourcing contract, says Potter.
“IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives,” he says. “In extreme cases, the lack of needed trust and control to optimise the outsourcing relationship results in deal failure.”
The trend among outsourcing organisations in recent years has been to source services from multiple providers (‘multisource’), rather than rely on a single supplier. However, according to Gartner, the difficulty that organisations have experienced in managing multiple contracts may force this trend to reverse in 2008.
“Because of multisourcing complexities often associated with handoff points between competing providers and unclarified vendor management processes, some organisations will consider prime-contractor outsourcing models or the appointment of new vendor management roles in their retained organisations,” says Potter.
Offshoring continues to grow, especially in Europe. Although the US stills spends three times as much as Europe on offshore services, that gap is closing. Indian offshore outsourcing providers saw their revenues grow 60% in Europe in 2007, compared to 40% in the US, Gartner finds.
However, wage and currency inflation threaten India’s cost advantage. According to Gartner research VP Ian Marriott, “more-sophisticated buyers are seeking a multicountry strategy to minimise risk and align nearshore and offshore delivery centers with their primary time zones.”
“Although India's offshore revenue will continue to grow, the country's share of total offshore spending will decline slightly in 2008,” he added.
All of the outsourcing industry will, in 2008, find itself under fiercer competition from utility computing providers, especially those using the software-as-a-service model.
“Gartner believes that the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond,” a company statement says. “User organisations need to realise that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies.”
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