How is the move to mobility affecting ITO? What impact have social networks had on the ITO scene? What are buyers demanding now? Is there a shift in ITO buyer locations?

Outsourcing Center talked with Dmitry Loschinin, CEO of Luxoft, a Russian-based IT services provider about the many issues impacting the outsourcing market today, including increased mobility, social networking, cloud computing, and evolving buyer expectations. The company, which opened its doors in 2000, has more than 4,000 programmers in Russia, Ukraine, Poland, Romania, and Vietnam, and its marquee clients include Avaya, Boeing, Dell, Deutsche Bank, and Harman.

Q: What is the biggest driving factor in ITO today?
A: Mobility. Demand for mobile applications is growing in almost every business sector. As consumers become savvier in their use of mobile devices, they are expecting businesses to keep up and offer their services in the mobile environment. Thus, companies are under significant pressure to move their applications to mobile phones. In addition, there are evolving telecom strategies like LTE, a new communications standard, which should be fully implemented by 2014. This will cause telecom infrastructure providers to have to rapidly upgrade their software. Luxoft is already involved with new engagements in the telecom space from companies requiring massive software and hardware upgrades. As this trend continues to grow, application development and maintenance (ADM) providers will write the middleware for this connectivity.

Q: Are the iPad and tablet computing playing a part in the mobility trend?
A: Yes. There is a huge demand for mobile applications and services, as more and more people want devices that can connect to the Internet from anywhere. There are new uses for tablet devices as well. At Luxoft, for example, we are working with a company in the automotive field to develop applications for infotainment systems in luxury vehicles. Some of these applications include embedded operating systems, advanced navigating systems, and integrated social networks, many of which buyers can enable through iPad and tablet devices.

Q: Are banks interested in mobile applications?
A: Absolutely. Technical innovations bring changes in business models. We were surprised to see large banks moving towards mobile applications. The traders now want the freedom and ability to trade instantly no matter where they are. Right now, we are working on providing mobile access to trading desks for a leading investment bank.

Q: Have you noted any hindrances for financial institutions moving to mobile applications?
A: Security is always a top concern for financial institutions and is one of the top factors preventing greater adoption of mobile applications. To overcome this challenge, we have helped several financial services companies implement protocols such as multi-factor authentication to ensure the security of their data exchange.

Q: How much activity are you seeing in developing applications for the cloud?
A: Companies are looking to us to write applications that will enable them to integrate cloud computing into their current IT structure, which for many, is still a new concept.

Q: How have social networks impacted ITO?
A: Very few corporations estimated the impact social networks would have on their business. Twitter and Facebook provide immense amounts of information in one location, something that was unheard of just a few years ago, and companies want to use these social networks to interact with their audiences. Many companies are anxious to leverage social platforms and harness the data contained within. This requires significant new IT work in the area of unstructured data operations using new technologies like Hadoop, which allows companies to parse large volumes of unstructured data at once.

Q: Are there any changes in what buyers are outsourcing?
A: Yes. Two years ago, 90 percent of our clients outsourced their back-office applications and systems. Very few outsourced their core applications, and when they did, it was only in a staff augmentation mode. In today’s world, technology is changing rapidly and businesses need to move fast in order to stay competitive. Now, more companies are outsourcing their front-end systems, relying on their software development partners to drive innovation.

Q: Is joint development becoming more common?
A: Yes. We recently did a large Agile project for a Wall Street firm. The project was split between four continents and 500 people on the client and outsourcer side. In this case, all project participants were on the same level, which made for successful results. More and more, the line between service provider and client organization are blurring. It’s no longer about affordable labor. Instead, companies are looking to outsourcing for strategic innovation, and it’s becoming more common to have a blended development team in place.

Q: How have buyer’s expectations changed in the last two years? Are there any new ones?
A: Today’s buyer/provider relationship is much different today. With outsourcing projects taking on a more sophisticated, high-end nature, the requirements for people doing the job have become stricter. Buyers expect us to be proactive, which was not the case before. They want us to tell them if we see elements we can improve in their business. If we had pointed this out before, it would have been the last conversation we had with that buyer. Today, that’s expected.

We also take larger ownership of the project and jointly invest in it with the buyer. A managed delivery service model, where the provider takes on full responsibility for the risks and outcomes, is a must. In return, as we get proficient in our client’s core systems, we get more long-term engagements. Before, providers just would have written the code, but today we are involved in improving key business processes and systems, creating innovation that takes companies to another level.

Q: Are ROI time frames different today?
A: Yes. Before, buyers based their ROI on a 12-month time frame. Today, it’s three to five years. We get to our normal margins after the third year.

Q: What is the status of frameworks?
A: Five years ago was the era of packages; today is the era of frameworks. Today, things are moving so fast packages can’t adjust. Frameworks, such as Agile, allow both the outsourcer and the client to effectively structure, run, and test projects.

Q: Is the ITO buyer landscape changing?
A: Yes, we are seeing a significant shift. In 2009, the United States dominated; the highest percentage of our assignments came from American companies. Last year, 60 percent of our $200 million revenue came from Europe.

Q: What areas of Europe are experiencing increasing ITO deals?
A: Our nearshore opportunities are growing. The UK is currently the biggest player, with Germany growing slowly but surely, followed by France and Switzerland.

Q: Why is Western Europe interested in ITO now?
A: The current economy has forced companies to consider outsourcing. Eastern Europe has become an established nearshore location, meaning that outsourcing to a company in Eastern Europe is a norm.

Q: What is your biggest challenge in the next five years?
A: The availability of talent is one of the biggest challenges for us. To solve that, we are reaching into new regions. Different economies do things differently, and we are working to stay ahead of these trends by fostering development centers globally that take advantage of local expertise, developed skill sets, and opportunities for growth.

Q: What is Luxoft doing to address the changing nature of application development outsourcing?
A: We do our best to address trends early. For example, we invested in developing our Agile expertise and scaled up our delivery organization to accommodate for the ever-growing need of talent. We want to grow the company into a truly global organization and become known as more then just an outsourcing provider, but also as a strategic technology company in target verticals such as automotive, financial services, energy, and telecom.