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Outsourcing industry is dynamic as never. Let’s see what are the key trends shaping it this year, and what has changed since we posted a similar comprehensive IT outsourcing industry overview for 2013.
This year, customers do own IT services deals, try the water with service integration model, struggle with outsourcing transitions, and look into AI. 2014 seems to be the year of customers.
Enter hybrid offshoring
A lot of IT outsourcing businesses across the globe face the trend – offshoring to a supplier is not the default any more. There has emerged a hybrid model – the so-called “Hybrid Offshoring”.
The odd term refers to a business model, featuring combination of insourced and outsourced offshore services. Even those models are not expected to become dominant just yet, many advanced outsouricng actors are experimenting with them. For the majority, the model is just too complex to embrace.
Lower cost consulting
Pricey third party consultants have been out of the scope recently, as an increasing number of experienced IT outsourcing customers decided to set up their own IT services deals. This year sees more consultants offering service clients “light-touch” services, mostly on annual subscription basis. Customers tend to go for less intense financial commitments.
As customers tend to seek more leverage with their vendors, outsourcing mega-deals are increasingly getting broken down to smaller pieces, and smaller deals become midsize.
Insourcing: back to basics?
The term “insourcing” refers to business practice in which processes that would otherwise have been contracted out are conducted in-house. Estimated 20-30 percent of IT services traditionally outsourced will be brought back to “the house”. Businesses move towards operational control over such services, preferring them to be provided by retained organizations. However, the industry tends to press a bigger deal of such trends, as they really are.
Industries like entertainment and media, which used to be reluctant towards outsourcing, are embracing global business services models, combining the best features of shared services and outsourcing within a common governance model. Processes are increasingly getting offshored in captives by those who hardly could have been doing so a few years ago.
The rise of the machines
Not science fiction: robots are becoming the new IT services professionals. 2014 is seeing a trend towards what we call outsourcing automation, as industries across the board generally move automation-wise. That refers to technologies and practices, in which many tasks usually performed by full-time outsourcing employees are being transferred to robots.
Robots replacing people in manufacturing and logistics is not a brand new practice, however wide-scale changes can be disruptive for the industry. That’s not a stretch to predict that with the development of AI (Artificial Intelligence) robots will make their way up the intellectual chain in the industries across the board.
As CIOs will face new challenges in dealing with cutting costs, the development and implementation of intelligent machines will have a drastic effect on the IT and outsourcing environments, it’s virtually impossible to predict the how the new tech can shape the industry. Can that be the beginning of the labor arbitrage era, or it’s just science fiction thinking?
Service integration is here to stay
Recent years have seen an increase in trust towards third parties when it comes to managing multi-sourced environments. This year businesses take on service integration. After a period of experimentation with different outsourced models, client organizations tend to focus on service integration, taking key functions back in-house. Clients don’t favor the loss of visibility and control over service management, since they have become too remote. Solid internal service integration provides better knowledge of the business.
The Cloud Gets Grounded
There is little if any doubt that cloud computing is here to stay, even though it has its challenges. In 2014 businesses struggle to effectively manage and refine strategies for cloud services. We’ll see consistent metrics appearing for ROI and better navigation on rapidly evolving contracting environment. Companies will be able to perform direct “cloud option vs. cloud option” comparisons as well as “cloud vs. traditional options” comparisons. That will allow cut costs and reduce errors, eventually leading to a more educated and cautions market.