Enabling Technology

EquaTerra Reports Cloud Computing to Dominate Outsourcing Market in 2011

The outsourcing market is becoming increasingly fragmented though overall demand continues to grow, according to EquaTerra’s 4Q10 Advisor and Business/IT Service Provider Pulse Survey. Demand for outsourcing and third-party services is expected to grow moderately in 2011, but the pie will be divvied up differently as the industry continues to evolve. Buyers are doing more multiple small deals in a range of sub-process areas, outsourcing new types of work and experimenting with a range of cloud-based offerings. Overall, organizations are outsourcing more and to more places around the globe.
 

"Buying patterns are changing," said Stan Lepeak, managing director of global research for EquaTerra. "Throughout 2010 we characterized slower growth in traditional IT and business process outsourcing as cyclical and attributable to cautiousness associated with a severe recession. It’s increasingly apparent, however, that what’s going on is more systemic. We’re seeing a gradual shift away from large, multi-process horizontal outsourcing."
 

Key Findings from EquaTerra’s 4Q10 Pulse Survey:
Demand for conventional BPO/ITO sluggish – Fewer EquaTerra advisors (48 percent) cited increased demand in the fourth quarter, down three percent quarter over quarter and five percent year over year. Only about half (51 percent) of the service providers polled reported new deal pipeline growth for the quarter, down 13 percent Q/Q and 24 percent Y/Y, further evidence of a systemic change in buying patterns versus cyclical fluctuations. (The 4Q10 Pulse Survey numbers do not reflect emerging/vertical sub-sectors or cloud-based offerings.)
 

Impact of weak economy on outsourcing a mixed bag – Service providers (60 percent) say the economic climate continues to drive outsourcing, up 10 percent from last quarter and four percent Y/Y. However, only 40 percent of EquaTerra’s advisors, who provide a forward view of demand two to three quarters out, report the weak economy is driving outsourcing, down 10 percent Q/Q and 25 percent Y/Y. The same percentage of EquaTerra advisors indicates economic conditions are significantly slowing deal flow.
 

Public sector pain represents opportunity – Third-party services may prove to be the way forward for cash-strapped governments. Facing a dismal fiscal situation, the public sector worldwide is entering an era of austerity. Layoffs and spending cuts are forcing governments to consider new ways to deliver essential services. By partnering with third-party service providers, the public sector can use pay-as-you-go strategies to streamline operations and realize productivity gains that can net big savings.
 

Cloud Next Logical Step in Evolution of Outsourcing
Outsourcing has not only reshaped the way business is done, it has reshaped business over the past 20 years. What began as a cost-saving initiative spurred globalization and enabled business to capitalize on productivity-boosting technologies. Now the next wave of innovation, cloud computing, is redefining the concept of outsourcing by offering "as-a-service" capabilities ranging from infrastructure to platform to applications.
 
 
These offerings are particularly attractive to cautious buyers who welcome the opportunity to shift operating expenses to capital expenses, peg price to usage, lower overall costs, and to scale up or down as needed. Cloud-based services are also the logical next step for organizations that have already adopted traditional outsourcing.
 

The "As-a-Service" Categories Expected to Experience Significant Uptake in 2011:

  • Desktop applications – A cost-effective alternative to licensed/installed desktop software (documents and spreadsheets, project collaboration, short messaging, email, calendar) accessed via the Internet, making applications available globally to distributed employees.
  • Infrastructure – Integrated technologies that work together seamlessly to enable fast, flexible delivery of both IT infrastructure and managed services (certified data centers, secure storage, disaster recovery, development and testing).
  • Customer relationship management – On-line applications enabling organizations to track prospecting and sales efforts along with customer support interactions.
  • Platform BPO – More standardized, cloud-based versions of enterprise applications, such as those from SAP (News – Alert) or Oracle, enabling multiple clients to use the same version of the software.

 

"Greater standardization is the wave of the future," says Lepeak. "For example, many firms in emerging markets are forgoing enterprise systems. They start up using standardized cloud-based systems and their operating costs are one-tenth of the legacy model."
 

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