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February - 2010 - issue > In My Opinion
Technology Optimization, Business Process Excellence to Impel IT Outsourcing
Nick Sharma
Monday, February 1, 2010
The recent economic recession has reiterated the need for IT companies, especially mid-sized IT companies, to revisit their drawing board, re-strategize and come up with path breaking, yet cost effective ideas for maximizing business productivity and performance.Companies have steadily started outsourcing and spending again, but before doing so, they are making sure that they first get a proper sense of what kind of returns to expect from their IT investment.

However, the global recession seems to have turned out to be a blessing in disguise for mid-sized IT companies who offer global outsourcing services / solutions - as not just big U.S. companies, even mid-sized U.S. IT companies have started to acknowledge the benefits of outsourcing non-core technology work to “specialists”. Gone are the days when having a captive centre was considered to be the most viable business model. Companies have started to realize that business process optimization is the new mantra for steady organizational growth and transformation. Having realized that they need to possess a certain level of maturity when it comes to processes, governance and vendor management, organizations have started to reassess their approach towards selective sourcing and multi-sourcing.

Mid-sized IT companies rapidly moving up the IT value chain
Industry analysts strongly believe that the market for outsourcing will considerably rebound in 2010. Research reports indicate that the focus for the IT outsourcing market will slowly but surely be replaced by an outcome based model - this essentially means that traditional deals will continue to decrease during the next several years even as new utility and cloud computing services start becoming the preferred model of outsourcing. This will instigate a paradigm change as companies try to figure out ways and means to successfully cope with this model. Those that develop a sustainable, commercial offering will continue to be in vogue and are sure to witness an upward trajectory with respect to business growth.

Research indicates that an important breed of ‘emerging market suppliers,’ delivering outsourced services from promising global sourcing locations are gaining traction with organizations seeking to mitigate risks through expanded global sourcing networks. Some of these companies have achieved meaningful operating scale; further, aided by significant investments in delivery capabilities and by adopting certain best practices in the industry, these companies are successfully serving world’s leading corporations. A key USP of these companies is that they offer the best of both worlds to clients - onshore/near shore value and cultural nativity with offshore labor arbitrage - thus providing commercially viable, blended solutions on a platter.

Furthermore, these suppliers are no longer confined to their ‘home’ countries and have augmented their delivery footprints by adding additional onshore, near-shore or offshore locations. Mid-sized IT firms have consciously started working towards developing a “strategic differentiation” platform to retain and increase their competitive edge over rivals. Not surprisingly, global reach has become a much needed prerogative for mid-sized IT companies today.

According to research reports, almost half of the Fortune 500 companies now use software services from mid-sized IT firms who have a global presence. Even as customers increasingly look towards companies with more specialized skills in helping them address their specific needs, outsourcing a company’s IT services to these mid-sized IT firms come with an inherent cost advantage.

Many mid-sized IT services firms with significant global presence are offering need-based solutions and services to technology companies who are looking to outsource their IT requirements. One trend that is becoming increasingly rampant is that these companies are providing multiple options to their clients.

A heartening fact is that mid-sized IT companies are moving up the value chain and are now offering more than mere cost advantages to those companies who are looking to outsource. Innovation is slowly becoming the hallmark of these software services providers. The economic importance of innovation is now underlined and is here to stay. These mid-sized IT companies will now be increasingly viewed as business transformation agents.

Having said this, there is still a huge potential for mid-sized global IT services firms to reach their pinnacle and aim to reach the top of the innovation pyramid. Against the backdrop of the global crisis, there is an opportunity for these suppliers to take on a leadership role, particularly in services, where these companies can add optimum value.

It is critical that these IT services companies credibly communicate the strength of their capabilities to the marketplace and gain mindshare amongst potential customers. There is an immediate need to develop and then drive the adoption of technologies that allow companies to cost-effectively engage and manage their customers across multiple engagement points, in both consumer and enterprise environments, without resorting to another third party vendor.

In today’s fast paced world, rapid advancements in technology have started to elicit a new and different behavioral pattern in consumers. In order to learn more about their increasing technology needs, consumers are making conscious efforts to keep themselves abreast of the latest technologies and their applications. This is fuelling close-knit integration at the enterprise-consumer touch points; amidst enterprises and consumers, this is instigating a strong correlation for technology support. Mid-sized IT companies need to identify this opportunity and don the hat of technology support advisors to both enterprises and consumers.

With such game-changing shifts in technology delivery as “Cloud Computing” hovering on the horizon, focus will naturally shift from simply providing technology services to positioning those services as a key part of overall business strategy. Not all CIOs will be able to make the switch with ease.

Customized solutions that allow companies to cost-effectively plan and implement a cloud computing strategy that is unique to their needs, will surely help companies drive down operating expenses and reduce the overall capital expenditure. Such solutions are not only cost-effective; they also provide high levels of efficiency and performance through an extremely convenient “Pay-as-you-use” model.

Mid-sized IT firms are leaving no holds barred to showcase their excellence. In order to ensure quick migration towards new technology adoption and radically enhance customers’ business productivity, they are deploying latest technologies, including Web 2.0 and SOA for better technology integration.

Such mid-sized software companies have been able to build substantial domain knowledge by providing application development and maintenance. These companies have constantly moved up the value chain - from custom software development to standardized products, to business process outsourcing and IT and business consulting. It is just a matter of time before mid sized companies, powered by a global reach, capitalize on this opportunity and start giving bigger players a good run for their money!

The author is Nick Sharma, CEO of CSS Corp.
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