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Europe’s economic problems cast a long shadow as the credit crunch and Euro crisis leave businesses in the UK and continental Europe with a lot of challenges, but what will this mean to the IT outsourcing sector in the continent?
Computer Weekly asked the experts for their opinions of what 2013 holds for IT outsourcing. Here are their thoughts.
Lee Ayling, head of KPMG’s technology shared services and outsourcing advisory
“Southern Europe will be outsourcing more. France, Spain and Italy will see the growth of local delivery centres to support European languages and locales such as Egypt and Latin America centres,” says Lee Ayling.
“We will see further supplier consolidation – perhaps even a big boy may sell their services business.
“Multi-sourcing remains the norm with most IT deals having service integration layers now.
“Some strategic management functions are being brought back in house in 2nd generation outsource deals – often the driver is to manage costs and governance.
“Don’t expect double-digit cost saving on outsource deals any more – focus on access to better capabilities.
“The Indian service providers are still buying assets (datacentres and people) to build out local delivery capacity – less so US players.”
Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner
“In 2013, business conditions will follow the Chancellor’s autumn statement, but it will be a busy year for IT and other outsourcers. My caveat is that fortune will favour the bold and creative,” writes Mark Lewis.
“We’ll see more big companies finally adopting public cloud at enterprise level and we’ll see some of the banks and other financial institutions using public cloud for parts of their businesses.
“The EU will publish standards and regulations for public cloud that will cause havoc with the US tech sector and the US government will step in. All cloud providers operating in Europe will have to radically overhaul their contracts, especially in the areas of data protection, sovereignty, mobility and portability.
“While public cloud will become more important, IT outsourcing will become even harder for complacent or unimaginative suppliers. We’ll see even more industrialised, shorter-term, multi-sourced IT outsourcing deals. Only those suppliers who can offer really smart solutions will flourish. For the rest, margins will sink even lower.
“We’ll see growth beyond IT infrastructure outsourcing into applications development management, but it will follow the same industrialised route as for IT infrastructure outsourcing.
“In BPO, only those providers with credible platforms that offer true platform BPO will succeed. Large-scale FTE plays in routine BPO like F&A will flounder and ultimately go the same way as ITO.
“Only offshore IT and BPO providers that achieve the nirvana of non-linear growth will put on significant revenue and margin growth in 2013.
“We’ll see an upsurge in serious cyber attacks from hostile states or state-sponsored cyber terrorists on UK government, infrastructure and business. Unfortunately, one or two will succeed and cause serious damage.
“The UK public sector will open up for massive outsourcing opportunities, both at central and local levels, though they will not be called outsourcing and many will look like privatisation, with the government retaining equity stakes in new outsourcing vehicles.
“There will again be change at the top in HP – which is probably the safest prediction of all.”
Sam Kingston, UK head at T-Systems
“Software as a service (SaaS) will see renewed enthusiasm in the guise of application portal implementations,” says Sam Kingston.
“Whilst the past decade was very much the era of the outsourcer, we are currently seeing a new age ushered in, where the chief service being sought is delivery of line of business applications as purchasable commodities.
“These ‘apps’ – with no need for complicated systems architecture – will be sourced from internally created, or hosted store fronts. The iPad generation has accelerated the change in corporate application dynamics, and acceptance of their employment will increase as the larger suppliers and service integrators jockey for position as leading providers.
“As a direct result of the acceptance of SaaS as a desirable utopia, corporations will move the needed upgrade or migration of key line of business applications up their priority list. Always the bane of any end user computing upgrade planning, due to time and expenditure required, application migration is often postponed for as long as is possible without causing detrimental effects on the business.
“Finally, with the advent of application portals, SaaS, and the pressure to move forward with new technology such as tablets and smartphones, corporations are now able to construct a viable business case to justify those application changes that were previously considered too expensive. Operators within the application migration space need to be prepared for this, and more importantly be able to take corporations from a classic model to the application portal.”
Security initiatives will pave the way for increased interest in public cloud storage
“The taboo discussions about moving data to the public cloud will finally become an open debate as intermediary security specialists step in to provide encryption and token secured data capabilities. Suppliers such as CipherCloud will see a boom in demand for their products, as corporations evaluate their long-term storage expenditure.
“Previously shying away from public cloud data storage due to valid perceived risks, the offerings from new suppliers will renew boardroom discussions about where organisations are willing to store their corporate data. With at-rest 256-bit encryption, encrypted transit and third-party token hosting, the option to store data in the cloud quickly becomes a cost-effective proposition that should not be discounted by any pragmatic organisation.”
Collaboration is king in 2013
“Office 365, Google Docs, and all manner of on-line collaborative toolkits are now available on the market. With travel expenditure reduced, and more interactive meetings taking place over the internet, it is crucial for providers of collaborative software to rise to the top.
“The release of the next version of the Microsoft Office suite, internally known as Wave 15, sees the entire extended family of Office products, including Project, Visio and Lync, stepping up to version 2013. With Exchange 2013 and SharePoint 2013 also being released, the emphasis next year is all on collaborative working and social interaction within the business. With the lines between corporate and personal devices blurring, so too are the ways in which employees work and communicate with each other.
“Widespread use of Facebook, Twitter, and other social networking sites are driving the development of new methods employees will use for working and interacting. Companies need to be ready to embrace the changes in cultural acceptance of social interaction tools such as these in order to stay ahead of the competition in 2013.”
Consumerisation will evolve from a buzz word into an activity
“If 2012 was the year of consumerisation discussions, 2013 has to be the year of action. Companies offering routes to consumerisation who want to be taken seriously, need to offer a real and viable way for corporations to move to a consumerised strategy.
“This may begin with bring-your-own-device (BYOD) initiatives in consumerisation, incorporating application migration and portals and the ability to access line-of-business applications from any endpoint device, from any location at any time. This transition is not an easy journey and will take time, but corporations willing to visualise the end goal and start to make changes to head towards this objective will find themselves leading the market, as their workforce becomes more fluid and agile in a strained economy where stagnant procedures and outdated methods lead to failure.”
Tablet devices will become more readily accepted into business with easier integration path.
“Like it or hate it, Microsoft’s release of Windows 8, along with the new surface devices, will help to smooth the way for acceptance of tablet devices as a business focused tool. This will not just be limited to Microsoft devices, iOS and Android based alternatives will see deeper market penetration, as the stigma attached to the inclusion of these devices is eroded. The cloud security discussions will also help in this space, as secure data storage can be extended down from the clouds to these next generation endpoints.
“Companies will look to BYOD as an enabler to squeeze further cost savings from infrastructure budgets. The client-based virtualisation solutions offered by companies such as VMware, Citrix and MokaFive will present corporations with real opportunities to save on capital outlay and operational expense when it comes to on-boarding of contract staff.
“The provision of a corporate image in a secured container on a contractor’s own hardware will mean day-one productivity and the removal of the traditional practice of purchase and provision of corporate hardware to these temporary employees. With economic growth still wavering and companies looking to remove costs wherever possible, the CIO will be squeezed to undertake initiatives like this in order to fund other critical investments.”
Avalanche of Windows XP migration projects.
“With one year to go until Windows XP is officially retired for good, companies who have not moved off this aging platform will start to feel uneasy as suppliers wind down any remaining support for products sitting on this desktop OS.
“This D-day of the modern IT era has always felt far enough away, to some, to be brushed aside. When supporting suppliers start to announce end dates for their XP-based products, the realisation that the date is fast approaching will hit these companies, and a wave of migration projects will be kicked off in a bid to at least move the underlying OS forwards onto the next supported platform.
“Windows 8 is still too fresh and its benefits beyond the tablet are still being debated. Windows Vista is a non-starter, so this leaves the rational choice for the next step as Windows 7.”
Robert Morgan, director at Burnt-Oak Partners
“The forthcoming year will see a further blurring of the realities and objectives for outsourcing and what precisely the definition of outsourcing really means.” writes Robert Morgan.
“Outsourcing as a term has become ubiquitous and symbolises the commoditisation of the original industry to a point where new models, measures and benefits need to be developed to give the industry focus and to redevelop new value propositions.
“The American giants of yesteryear are a shadow of their former selves, all lack real CEO leadership and have cost bases that shout ’physician heal thyself’.
“HP and CSC are on the critical list for heart and lung transplants and wheezing asthmatic IBM is not far behind. Accenture has leprosy and the rest… well, they are the rest. Indian suppliers such as HCL lead the pack, with devolved authority and solid processes and technical excellence.
European growth in old fashioned outsourcing
“The economic crisis of 2008 is still echoing and Spain, Portugal and Ireland will lead the way, despite the internal protests, with culture-shattering outsourcing deals benefiting mostly national or regional players.
“This is because the global players have failed to invest, or consistently invest, ahead of time in key EU countries and regions, choosing token investment only when a largely self-funding deal occurs. This does nothing to recruit and retain top talent and it is the client who suffers long-term.
“Scandinavia is a great example where we do great business and have seen yo-yo investment and commitment from the likes of HP, Siemens and Fujitsu. Italy and France will of course tinker with outsourcing as usual and pull back from anything too large or too culture-changing.”
Service providers on life-support
“HP and CSC’s problems are well documented. However HP’s cannibalistic tendencies regarding their numerous CEOs will rear up again and see Meg Whitman claiming unemployment benefit before the year is out.
“CSC has been selling its assets and may survive but not as we know it today. IBM is bereft of new ideas and will lose renewing clients in profusion.
“Regional players like CGI Logica and Atos Siemens will benefit especially when the EU starts its new run of legislation (see below). Will there be any logo deaths in 2013? It is possible, but the break-up into saleable smaller entities seems logical and necessary.”
EU regulators take on the US
“Three ground-breaking pieces of legislation are expected to be enacted or at least tested before the populace.
“Taxes on outsourced datacentre activities. The carbon footprint of large datacentres is a big concern and many companies gain the carbon count advantage by outsourcing these activities. ‘Tax them in-house or out of house,’ is the maxim, so high-energy using datacentres will be hit with new EU taxes
“Public cloud is subject to the Patriot Act and as such all data can be inspected by the US authorities without permission, notification or an audit trail through any US registered company. The French government will pioneer legislation to credit French service providers to develop a zero American company exposure. In the meantime, Brussels will hide their anti-American feelings behind carefully worded regulation to control public cloud sovereignty, cross-EU border mobility and portability and enhancement to data-protection legislation. Isn’t the fear of terrorism great for passing anti-competitive acts?
“Such legislation will rip apart ridiculous Google and other contractual clauses on the provider having ‘perpetual ownership of all private data’ under its control.
“A fourth piece of legislation might occur to de facto restrict the movement of outsourced workloads to the EU, starting with central and local government. Aren’t recessions great for passing anti-competitive acts – see, America, you are not the only one, but thanks for the lessons!”
New models in the offing as UK PLC leads the way
“Burnt Oak pioneered new and alternative commercial and operational model three years ago to largely deaf industry ears. Only the government listened and developed variants which now underpin some of the most innovative and revolutionary outsourcing deals, based on mutualisation where a special purpose vehicle is formed to undertake a carefully designed and sponsored business model.
“The client retains a shareholding until the objectives are being achieved then it sells it shareholding to the service provider largely for the benefit of the transferring staff. For example the floatation of the Post Office will see 8% of the market capitalisation going to the postmen’s pension fund. Other models give staff shareholding powers, such as the John Lewis model. This is outsourcing of the future.
“Eventually, but probably not totally in 2013, the tier-one and tier-two suppliers will understand that, to survive, they need to at least put such models in their portfolio of deal constructs.”
The death of loyalty and growth of commodity
“Everything on demand is growing and indeed is being heavily advocated by the big service providers. The facts are that these self-same companies have the highest cost of sales, highest paid sales staff and corporate overheads, seems strange. What these suppliers need is client continuity, contractual commitment and predictability. This is the antithesis of the sales and marketing messages they spew into the market. Volume will not make up for the profits of old fashion change orientated outsourcing.
“Clients will – especially if Burnt Oak has anything to do with it – run ongoing checks on the commercial viability of suppliers. No-one is too big to fail in this world anymore. This is not outsourcing anymore, this is IT consumerism on steroids.”
Sean Finnan, former regional head at EDS and IBM Global Services
“If I look to the demand side I think that will remain strong as we saw in the second half of 2012. This is primarily driven by economic factors putting pressure on budgets and general awareness of newer offerings such as cloud increasing,” says Sean Finnan.
“However the supply side continues to fragment. Global processes and cheap labour will be insufficient. The rise of knowledge-based outsourcing based on big data and analytics will become the buzz.
“This brings competition from three sources; IT players , BPO where this style is more familiar and new entrants expanding on an existing vertical strength. On the IT side again there will continue to be a strong commoditisation.”
Rich Lowe, CEO, BT Engage IT
“Analysts are already saying infrastructure as a service (IaaS) is taking over from traditional datacentre outsourcing, and more than three quarters of UK businesses will have moved to a private and hybrid model as part of their core IT infrastructure in the next three years,” writes Rich Lowe.
“We’ve developed a scalable platform in order to help customers move over to cloud-based infrastructure as painlessly as possible, no matter where they are in their cloud journey. This adds to the BT Private Compute and BT Cloud Compute offerings that make up the BT Compute family and means we can deliver the exact services customers need, without the capital outlay and risk traditionally associated with infrastructure projects.”
“We all know that we’re in the midst of two ‘megatrends’: the move to the cloud and consumerisation. They’re transforming the way that businesses think about IT and how it is delivered. Consequently, we believe there is going to be an underpinning trend at heart of technology in 2013 – and that’s about the changing role of the CIO.
“At the leadership table, CIOs are rapidly becoming true business leaders and change agents in driving their companies forward to new markets, channels and customer support models, in order to realise the true benefits of the megatrends.”