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IT outsourcing is set for major growth, according to a new report by Prof Joe Peppard of Cranfield School of Management, which was commissioned by Irish-owned I.T. Alliance.
In summer 2010, I.T. Alliance’s overseas revenues exceeded 50pc of the total for the first time. To date, this has mostly been in the UK market but the company also announced export contracts, valued at Ђ750,000, to optimise and support two data centres in France and Denmark.
The goal is to become a Ђ100m revenue company, the company said. I.T. Alliance employs 400 people in outsourcing.
Peppard suggests there is a pent-up demand in the marketplace for technology which will cause the global tier one outsourcing firms themselves to increasingly look to trusted outsourcing partners.
“Computer hardware, software and telecommunications are building blocks of the modern ‘smart’ economy, as basic as iron ore and coal were to the industrial era and represent about half of all business spending on equipment.”
He said that during the downturn, organisations axed headcount and turned to IT outsourcing, which allowed them to fill in the gaps without having to commit to long-term fixed costs.
As the global economy recovers, organisations will need to further increase IT outsourcing in order to be able to respond quickly to market demands.
“The steady march of digital technology, including cloud computing, across all sectors is pushing demand for information technology. The recession curbed spending for awhile and forced organisations to improve the efficiency of their data centres and technology operations, but that performance improvement only goes so far,” Peppard said.
“Following the dot-com collapse, we adopted a unique new business model in 2003 following extensive research,” said Philip Maguire, CEO of I.T. Alliance.
“We became an ‘own label’ of the primary global outsourcers and do not compete with them. We commissioned this latest report to stress test our Tier Two Service Alliance (T2SA) model. The findings and our own growth internationally suggests that the model remains more robust than ever.”
Significant M&A activity forecast in outsourcing business
The Peppard study predicts continuing mergers and acquisitions in the primary outsourcing market. The study also suggests that traditional mega outsourcing deals of the past will be fewer as outsourcing-friendly sectors, such as financial services and manufacturing, face up to radical industry challenges.
“The outsourcing industry in markets like the UK and US is now relatively mature. As such, buyers will look to multisource for maximum value rather than commit to one provider. This will apply to the public sector as well as private sector,” states the report.