Global IT Sourcing in 2012 – Stagnant, shrinking or significant

And so within a span of two years, economists would make us believe that a second recession is upon us. There is global turmoil, natural disasters, and low customer confidence. Governments are highly leveraged, the Euro zone seems floundering, unemployment levels are high, and there are reports of a slowdown in China- so what does all these mean for technology spending going forward- was the agenda of one of the most anticipated sessions at the 20th NASSCOM India Leadership Forum, Mumbai.

Leading the discussions was an eclectic group of researchers, service providers and clients- Bill Allison, CTO, Deloitte, R Chandrasekharan from Cognizant, and John Douglas, CTO, Burberry, chaired by Helen Huntley from Gartner.

Helen presented some revealing statistics at the outset- yes there was a slowdown in the pace of IT spending. IT spending grew at a CAGR of 6.3% during the period 2001-2008, but is expected to grow at a CAGR of 4.4% during the period 2009-2015. While on paper it looks like a decline, keeping in mind the increasing base, and the growing volatility in customer demands and environment, this is not shrinkage, but the point to be noted is that the type of spending will be grossly different.

The traditional IT model is best explained by the phrase- “My IT, My way”- client owned and driven, banked on a customized application development model, labor based, involved own data centers and servers, use of licensed applications and offshore services. The future IT model will be cloud based, utilizing an industrial model using shared infrastructure, factories and assets, dependent heavily on SaaS and the global delivery model which promotes diversification of risk.

There is a pronounced shift to industrialized services, with SaaS, PaaS, and IaaS expected to generate USD 112 Bn of revenues in the next 5 years. In 2011, custom application services accounted for 43% of all softwares, while SaaS accounted for only 12%, with packaged software contributing the remaining 45%. By 2015, this scenario is expected to change substantially in favour of SaaS which will account for 22% of all software transactions, and custom apps will decline to 33%.

Additionally, this shift is compelling clients to evaluate vendors differently- earlier, customised services providers were judged through their investments in talent pool and service delivery capabilities, their abilities in managing talent to meet demand, number of development centers and IP, revenue growth potential and future viability, profits garnered from efficiencies and productivity and a competitive price for value equation. Future evaluation will be on solutions and utilities they can provide- investments they make on solutions and optimization tools, availability of shared factories, profit from scale, value and efficiencies, focus on outcomes with a focus on mass market applications.

Bill Allison also had a concurrent view- he had three fundamental observations on the future of technology spending-

  • Better, cheaper, faster- Involves heightened sensitivity to quality, risk, and outcome certainty. Differentiated skills are considered fundamental, while customization and certified to serve will be key for success. Service providers need to be cheaper through expanding service categories with seamless transition, provide alternate business models at disruptive price and costs. Service providers need to be fast and nimble, with a highly correlated supply demand based workforce, should be capable of virtual teaming and collaboration and provide an actual 24X7 service model.
  • Enterprise overheads are not dead but there is a hiatus- Core office systems will be heavily influenced by the mobile technology which will entail anywhere, anything, anytime services, social/big data analysis will create a need to view new data categories, business intelligence/analytics will give the ability to answer any question while cloud will create the necessary delivery functionalities.
  • Emergence of the ecosystem- Lines between organizations are increasingly blurring, and there is a constant evolution from one stop shopping to optimized, seamless and specialty skill development which requires special sources. While the inherent generational skills will support new delivery models, there is a gradual need to build a partnership model.

The key technology trends underline the key theme of the session which is that the next generation IT spend will be of a different type, with clients seeking cost effective solutions, not cost effective skills only. Clients today candidly admit that they want assured business outcomes, and this can only be achieved if the industry is able to increase involvement with customers, develop a robust partnership model that will promote shared vision, and trust and mutually beneficial future growth.

One Response
  1. panama hosting

Leave a Reply

Your email address will not be published. Required fields are marked *


*