IT Outsourcing: 3 Trends to Watch

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IT Outsourcing: 3 Trends to Watch

Cloud computing, ‘onshoring’ and Latin America—the developments that will change the way businesses outsource

Laura Clapper | Mon Jul 5, 2010TAGS: agility of operations, cloud computing, efficiency, global business climate, IT outsourcing, onshore production

Companies turn to IT outsourcing as a way to reduce costs while tapping into established knowledge and talent. As the global business climate changes, so does the playing field for IT outsourcing. Technological developments such as Cloud Computing make it easier for companies to outsource their infrastructure to cheaper locales within and outside of their countries. Similarly, the dominance of India for IT outsourcing is threatened by the emergence of Latin America as a cheaper alternative.

“Outsourcing allows organizations to shift investment to strategic initiatives and focus on their core business rather than tactical functions and achieve higher predictability, efficiency, scalability and agility in IT operations,” said Surya Kant, President, North America of Tata Consultancy Services. “It also allows the enterprises to leverage R&D expenditure from large service providers and bring innovative new IT and business-focused solutions without investing to build them.”

IT is outsourced to countries where employees are able to communicate with business managers and customers clearly and effectively. According to Leon Rizio, Senior Consultant and Principal for CUSTOMatrix, competition with China for outsourcing business drove India to establish the infrastructure necessary for IT contracts in Bangalore and eventually the rest of country. Though the Chinese may have the infrastructure for IT development in place, the language barrier is often a difficult challenge to surmount.

OUTSOURCING TRENDS
Latin America has emerged as a new destination for IT outsourcing. The economies of the countries of the region have been growing steadily over the last decade and are poised to become business powerhouses. “There are many companies from emerging markets that are becoming multinationals,” said Kant. “TCS [part of the Tata Group] has been leveraging presence in fourteen countries in Latin America and offshore centers in Brazil, Uruguay, Mexico and Chile to serve these organizations in their local and global needs.”

Infrastructure is beginning to be geographically independent, meaning that it does not have to be done onsite. This allows high speed data centers to move to anywhere in the world without negatively impacting costs. “Some people are moving their infrastructure to India, but I would say people are moving their infrastructure to lower cost locations, mostly in the U.S.,” said Tom Young, Partner & Managing Director, CIO Services – Infrastructure, TPI.

EMERGENCE OF CLOUD COMPUTING
Our experts agree that cloud computing will have an effect on outsourcing. Cloud technology allows people to access applications from anywhere within the cloud network. “Cloud computing will be a benefit to outsourcing,” said Rizio. Rizio surmises that cloud computing may replace or reduce the need for an entire IT department and reduce the need to outsource completely.

“Cloud computing remains a focus in the industry, and we believe it will become an increasingly viable option for enterprise IT and specifically to IT service providers, primarily due to the infinite opportunities around innovative business models,” said Kant. “While the technology foundations of cloud computing can be considered as a gradual evolution, we believe that the business models will prove to be potentially disruptive.”

According to Young, a hurdle that businesses face in adopting cloud computing technology lies in their complex legacy processes. Companies have established business processes that have been customized to their business model. “Cloud computing is the antithesis of that, it’s simple and standard,” said Young. While many companies aren’t ready to adopt cloud computing right now, they are testing the waters as they seek to simplify their complex processes. Young feels that more companies will adopt cloud computing within the next five years. “The way that companies do business has to change,” said Young, “They have to redesign their internal processes.”

SECURITY CONCERNS
The United States is more diligent in prosecuting individuals or groups accused of stealing trade secrets or pirating protected products. “Countries abroad don’t have the same concerns about piracy that we have in the States,” said Rizio. Once products or services have been outsourced overseas, there’s a risk of intellectual theft.
Cloud computing carries a high risk for privacy and security breaches, as the nature of the technology provides for the easy accessibility of applications and information from anywhere. However, as cloud computing permeates the way companies do business, security applications are sure to spring up to meet consumer and business demand.

TIPS FOR OUTSOURCING
Companies who have never outsourced before should seek the help of qualified experts. “The cost of advice is less than the cost of a mistake,” said Young.
Once a company has determined what to outsource, it is imperative to address the expected outcomes of the move and establish benchmarks. “This will help minimize and reduce unwanted costs and ensure greater customer savings, less time and effort wasted by the IT service provider and a more successful business outcome – all factors leading to higher quality of experience and greater certainty for customers,” said Kant.

Take the time to research where to outsource. “Each country has advantages and disadvantages. All countries are interested in outsourcing, but the challenge is: Do they have the infrastructure? Do they have the procedures? Do they have the people?” says Rizio. The best place to ‘outsource’ may be in one’s own country.
To help ensure success, establish relationships and comprehensive policies to keep the lines of communication open while securing productivity.

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