IT Outsourcing Trends

A new year always brings new challenges and opportunities. This is especially so in a rapidly evolving environment like IT outsourcing, influenced by advances in technology, global labor arbitrage and the behavior of enterprises in today’s difficult economy. Based on last year’s learnings and ongoing processes, IT outsourcing experts predict that in 2014 robots will put cheap labor out of business and that clients will gain more control through a variety of multi-sourced deals and enforcing cooperation between competing vendors.

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1. More Automation, Less Cheap Labor in IT outsourcing

With the impressive development of artificial intelligence, it’s quite likely that more and more tasks currently assigned to full-time IT employees will soon be taken over by robot-like technologies, says outsourcing expert Shawn C. Helms. This is a real killer for offshore vendors, for example in India, employing low-paid staff to carry out simple tasks, according to analyst James R. Slaby at HfS Research. For other IT outsourcing companies, however, automation can be a valuable tool to negotiate better deals and to concentrate their expertise on areas that require human judgement and experience.

The automation of IT chores is not entirely new, but it’s just about time it caught on in earnest. To quote Joe Nash, executive at Pillsbury, “With the cost benefits of labor arbitrage being largely harvested and labor costs inevitably on the rise, CIOs will need to look for… ways through automation to reduce the amount of work it takes to complete an IT function or service, not the cost of the labor to do it.”

Process automation will become integrated with service provider solutions, adds Chip Wagner, CEO of IT outsourcing consultancy Alsbridge.

2. Clients Will Mix and Match Outsourcing Models

As companies strive to find the ideal combination of competitive talent and cost-effective solutions, the traditional outsourcing vs. in-house structure becomes more nuanced, richer with options. “The best sourcing strategies treat outsourcing and insourcing as complementary not competitive, and leverage onsite, onshore, offshore and nearshore options all in the same model”, says Scott Staples at IT service provider Mindtree.

Furthermore, according to Wagner, the resizing and reshuffling of IT outsourcing projects is expected. Multimillion-dollar deals will be disaggregated into smaller chunks. On the other end of the scale, several smaller deals will be rolled into midsize ones, as clients seek more leverage with their vendors.

3. Cooperation Between Multiple Vendors Will Be a Must

The downside of multi-sourcing solutions is that, more likely than not, a client ends up working with several IT outsourcing partners, and coordinating the output of competing vendors can be a nightmare. Perhaps not anymore: in order to force competitive service providers to work together for a shared goal, some customers have started implementing cooperation agreements as part of the outsourcing contracts, which legally obligate partners to join forces on an operational level. According to Helms, 2014 will see an increase in such IT outsourcing cooperation agreements.

Whether these predictions will stand their ground, only time will tell. What other trends in IT outsourcing do you see coming up this year?

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