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12 IT Outsourcing Trends to Look Out For in 2012

by: Sarah Joson

Tuesday, December 27, 2011 |

What to Expect in IT Outsourcing this 2012

Now that we are treading the last days of 2011, the year when the IT outsourcing industry saw smaller deals, customers were doubtful of the process, and cloud computing was talked about a lot, it is believed that 2011 developments might resonate throughout 2012. However, economic issues will still take its toll on the entire sector.

At CIO.com, Stephanie Overby listed down 12 IT outsourcing trends that may be seen next year, according to industry experts:

1) International firms are set to look for other locations besides India.
Phil Fersht, founder of outsourcing analyst firm HfS Research, said India will see slower growth. Cost efficiency will no longer be the main reason international companies outsource offshore. They will now consider expanding their skills and knowledge in back-support and other processes by tapping into countries like Brazil, Malaysia, Mexico, South Africa, Romania, and Bulgaria.

2) Expect sterner IT security.
Mark Ruckman, outsourcing consultant at Sanda Partners, predicts “2012 will be the year of security”. He believes that sooner or later, one of the numerous IT service providers worldwide will experience an embarrassing security breach, which is why he thinks outsourcing firms will definitely find better ways to protect their client’s data.

3) Application development will likely be sourced from the US.
Financial service firms have long sourced fragments of their codes from offshore providers, but will realize that it is actually more affordable to do so by establishing captive centers or acquiring the services of third party providers in secondary US cities.

4) IT outsourcers will try different things.
Everest Group believes IT service providers, specifically the ones offshore, will find new and innovative ways to counter the pressure brought about by pricing issues to reinforce growth and profitability.

5) Failure to put backsourcing words into action.
Steve Martin from Pace Harmon predicts companies that are fed up with procuring IT services offshore will make impulsive decisions to the point of scheming a plan to bring back work in-house, only to realize that it’s too much for them.

6) IT Outsourcing clients might axe account managers.
Phil Fersht of HfS Research believes account managers of IT service providers should not focus on sales to the point that the core requirements are brushed aside. There is a need for account managers to think about not just the revenues but building relationships as well.

7) Opportunities in Infrastructure building.
Offshore IT providers are set to expand their service offerings by trying their hand at infrastructure building. They have actually been working on developing the process and honing it to move past application development and maintenance work.

8) It’s time for small players to shine.
Outsourcing providers will try to bank on smaller enterprises as they have exhausted their leads from the Fortune 1000 pool.

9) IT vendors will remain fixated on labor arbitrage.
Outsourcing buyers will be looking for more factors other than low costs before signing deals. Service providers, on the other hand, will still focus on keeping costs low.

10) The cloud will be more defined.
The hype around the cloud will definitely mellow down as IT providers shift their focus on improving the service by calculating the risks and providing the service in areas where clients need it most. Stricter regulations for the cloud will also be implemented by 2012.

11) Outsourcing buyers will be on guard for another recession.
The decisions for improvements and expansions by outsourcing buyers will most likely be put off until they are confident enough in the economic situation. Most of them will see large contracts as a business solution that entails a lot of risks, said Everest Group, and added that there may be slow activity during the first half of 2012. However, there’s a great chance that it’ll gain stride in the following months.

12) 2012 will be made up of M&A combos.
Fersht of Hfs Research said providers will avoid large mergers due to scarcity of the business model that they actually need and want. One example is a flexible structure that can accommodate expansions and reductions.

In the US, Fersht sees large providers that have merged are making use of cloud-based tools. According to Ruckman, there’s also a possibility that three mid-sized companies will merge and make up a large IT service provider.

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