Basman | Explore: IT Outsourcing

Accenture — in collaboration with the Confederation of Indian Industry (CII) — conducted research with more than 200 Indian business leaders to explore the next phase of technology-led growth in India. In particular, the study (PDF) looks at the opportunities arising from increased access to information and communications technology (ICT) in low-income communities.

Background

A powerful combination of factors means that there has never been a better time for India to pursue growth opportunities based on information and communications technology (ICT):

• Exploiting the “demographic dividend”: ICT-based solutions have the potential to address many of India’s structural challenges, including education, health, employment and productivity.
• The convergence of stakeholder interests: There is increased acceptance among leaders from business, government and civil society that ICT can play a crucial role in enabling social and economic growth.
• Business investment is real: Indian firms see ICT as a major driver of the country’s current and future economic growth. Businesses expect to expand operations to more locations, but require adequate access to ICT.
• The new digital landscape: Innovations in technologies are dramatically expanding the possibilities of ICT-enabled growth in India.

(more…)

More Contracts, Increased Outsourcing Adoption across Europe and Asia-Pacific, yet a Moderate Decline in Market Contract Values from 2005 to 2006

TPI, the world’s leading advisor to global corporations on all facets of their service-delivery strategies for business support operations, today announced the developments of 2006 in the global outsourcing industry through the TPI Index report. The contracts awarded in 2006 represented the single-greatest number of such agreements in any year, up 3 percent from 2005’s previous high. After an exceptional first quarter, the year concluded with a total contract value (TCV) of $78 billion, amounting to an 8 percent decline from the prior year. Annualized contract value (ACV) — an estimate of the average yearly revenue potential that may be derived from the 2006 contract awards — reflects roughly a 7 percent year-over-year decline in ACV.

”The 2006 numbers were down due in part to shorter contracts as well as those with smaller dollar values,” said Peter Allen, partner and managing director for Market Development at TPI. “However, the market is growing. The ACV signed for 2006 was the second strongest year ever for annual value coming online, and the industry also had a record year in contracts with annual average spend of $100 million. The year-over-year comparisons are down due to an exceptionally strong 2005, rather than a weak 2006.”

The number of “mega deals” — those with contract values above $1 billion – was unchanged from 2005 but off $5 billion in TCV from the prior year. Elsewhere, the total number of transactions completed as the result of a restructuring of a prior contract was a record at 72, but the TCV of just over $20 billion was not a record.

(more…)

Andrew Parker, vice president of Forrester Research and research director for the company’s EMEA IT services research team, and Tom Pohlmann, leads Forrester’s research into the economics and management of corporate IT, as well as the IT services market, are analyzing in a study the line between technology and service that will blur at a faster pace:

Market forces of commoditization, miniaturization, industrialization, and globalization, along with changing buyer sentiments, will accelerate a shift in the dominant form of IT delivery by 2012 — from buyers self-integrating technology to having it assembled and managed by outside providers. These four underlying drivers aren’t new, but their convergence will accelerate this market shift and make it stick: stable operations farmed out to third parties, new IP sourced from open communities and solution brokers, emerging technologies going to market wrapped in process bundles, and new software investments based on subscription rather than ownership. The resulting IT ecosystem structure will place those technology suppliers with the strongest delivery capabilities at the hubs. But in order to stay in the game, today’s vendors and service providers will need to overcome their own inertia around the development and management of IP, their rigid engagement models, and their dated partnering strategies.

Sudin Apte, country head and senior analyst at India operations of Forrester Research, has made a quick take on the strategies of the top Indian outsourcing firms:

Infosys, Tata Consultancy Services (TCS), and Wipro — are at a strategy crossroad. Formerly undifferentiated low-cost body shops, these firms have built their own separate strategies. Wipro is continuing to focus on new ways to cut costs via efficiency boosters and low-cost labor. Infosys has placed the bet to continue leveraging the Indian cost model, while going head-to-head with the likes of Accenture. TCS will continue to leverage its size and global-delivery foot print. Evolving differentiation and concerted efforts on quality and cost reduction by the top three Indian firms will mean further marginalization of midsized and small Indian vendors, and the multinational IT providers will face continued pricing and process upgrade pressure.

Over-the-counter debt and derivatives volume seen as key avenue for expansion for exchangesThe increased growth and profit pressures that come from going public combined with sweeping new regulations are rapidly transforming the world’s financial exchanges, according to a research report by Accenture.

The report is based on in-depth interviews with more than 50 senior executives at leading stock and derivatives exchanges, clearing and settlement institutions, and buy- and sell-side firms in Europe, North America and Asia.

According to the report, the percentage of the world’s stock market capitalization residing on publicly-held exchanges has grown by nearly a factor of eight in the past six years, from 8 percent in 2000 to 63 percent in 2006. The related transition of exchanges to public ownership with accountability to shareholders is forcing the industry to rapidly pursue new revenues and greater profitability.

(more…)

Navi Radjou, Vice President at Forrester Research, debunks five myths about emerging markets and writes in the second document in the “Balancing Risks And Rewards In A Global Tech Economy” series with the title “Debunking Five Myths About Emerging Markets“:

Western CEOs view emerging markets like Brazil, Russia, India, and China (BRIC) as Alice dreamed of Wonderland: a place of unlimited opportunities where profits keep going up while costs keep going down. Alas, as Alice did, CEOs must wake up and get realistic about BRIC nations’ short-term potential and proactively deal with the noneconomic challenges of expanding and operating globally. To empower corporate strategists who advise CEOs at incumbent and aspiring multinational corporations (MNCs), this document debunks popular misconceptions about emerging markets and their glorified impact on Western firms’ business performance by using evidence from successful companies that are embracing a pragmatic approach for expanding their global operations.

The five myths that incorrectly set the globalization compass according to Navi are:

1. Myth: Billions Of BRIC Consumers Are Lusting For Western Goods
2. Myth: Millions Of “Chindian” Brainiacs Are Willing To Work For A Dime
3. Myth: Unstoppable Capitalist Forces Are Flattening Barriers To Entry Into BRIC
4. Myth: BRIC = Emerging Markets; Emerging Markets = BRIC
5. Myth: Triumphant Emerging Markets Will Soon Curtail US Global Competitiveness

His recommendations to corporate strategists: Ignore short-term reality and prep your firm for long-term BRIC success.

Many Companies Outsource to Help Upgrade Internal IT Skills and Seek Third-Party Providers That Are Closer to Home

Most companies outsource at least some of their application development or maintenance functions, but saving money is not the prime motivator behind these outsourcing strategies, according to the findings from a new Aberdeen Group benchmark study.

In addition, Aberdeen’s research found that a substantial portion of respondents to the survey – about two of every five – say their companies would prefer working with service providers that are close to or within the same time zone to allow closer contact with the people they work with regularly.

These and other findings are detailed in a new Aberdeen report, Outsourcing Application Development and Maintenance.

(more…)

Forrester Research reports trends in current deals:

With 65 deals closed and approximately €5 billion spent on IT services in EMEA, Q2 2006 greatly resembled Q2 2005. But closer inspection shows that these two points of comparison are the only real parallels between the two quarters. The balance of contracts by service type has shifted hugely, and Q2 2006 shows a different picture concerning the vertical markets as well. Firms in the consumer products segment have come from nowhere last year to top the list with 16% of all deals this time, while the established sectors saw a drop in their share of deals. The same is true for the distribution of deals by country: UK firms lost significant ground in comparison with last year, while German and French firms were more active. Vendor success wasn’t striking; this quarter; we only found one megadeal — CSC’s deal with BAE Systems. As noted in previous quarters, EDS had the most deals.

Reuters writes from New Delhi:

New Delhi is the most attractive city in the world for companies looking to set up offshore back office operations thanks to its cheapness and a large pool of skilled labour, a new survey by a U.S.-based consultancy says.

The next six slots in the league table produced by outsourcing consultancy neoIT are also filled by Indian cities — Bangalore, Hyderabad, Mumbai, Pune, Chennai and Kolkata.

“The labour pool remains a huge advantage in India — you don’t have to spend lots of money training people up,” Sabyasachi Satyaprasad, a senior director at neoIT, told reporters in New Delhi.

Vietnam’s Ho Chi Minh City is the most attractive non-Indian destination for offshoring jobs, followed by Manila, Shanghai and Moscow.

The full Global City Competitiveness survey is online at NeoIT (registration required).

How CIOs can thrive amidst high levels of MA&D activity

Chief Information Officers (CIOs) who approach organisational mergers, acquisitions and divestments (MA&Ds) as an opportunity to grow staff and strengthen IT assets put their companies at significant advantage over those who view MA&Ds with trepidation, according to new research from Gartner.  In a report entitled ‘Timing Is Everything in Mergers, Acquisitions and Divestments’, results from a survey by Gartner Executive Programs (EXP) reveal that CIOs who take on the role of integrator from an early stage in the process can improve the success of the overall deal. It also highlights 10 distinguishing practices of MA&D experienced CIOs.

“Integrating the IT systems of two or more enterprises is a vast, complex and potentially costly process and it is a major challenge for the IS organisation,” said Dave Aron, vice president and research director at Gartner EXP.  “However, if the process is handled in the right way, it can provide the opportunity to upgrade and update existing systems for overall business benefit. Proactive CIO involvement in the MA&D process can also play a significant role in identifying and reducing information and process-based risks that span multiple business areas, as well as spotting opportunities related to that information.”

A positive approach and attitude towards mergers and acquisitions is one of 10 powerful practices identified by Gartner in MA & D-savvy CIOs.  “IS organisations which are MA&D-ready tend to have a CIO who has been engaged in the process from an early stage,” said Mr Aron.  “In such cases, the CIO is ideally placed to both maximise the value of future integrated systems and retain employees who will be of long-term value to the organisation. With MA&D deals on the rise again, CIOs need to understand and influence their enterprise’s MA&D agenda,” said Mr Aron.”

(more…)

According to the results of a survey of 420 business technology professionals by InformationWeek, Accenture ranked as the #1 leading Outsourcer, scoring the highest in each of the 13 categories. In addition, the firm’s highest score was for its reputation.

The research report identified Accenture as one of the few Western IT services providers to consistently report strong growth in its outsourcing business in recent quarters. Posting an outsourcing revenue of $6 billion in fiscal 2005, an 18 percent jump over the previous year, focusing on outsourcing seems to have worked well for the consulting organization.

The survey reported that nearly two thirds of companies that outsource do so to cut costs and goes on to report that outsourcing is on the increase: worldwide sales grew six percent to $624.4 billion in 2005. Outsourcing gives companies the ability to vary IT capacity, mitigates risk by spreading work across geographies and since the stigma and controversy of outsourcing has started subsiding, more companies are trying it.

Download the full article [PDF, 202K]

Outsourcing, seen by some as a relinquishment of control over corporate activities, can provide distinct advantages to a company. Christian Marchetti, Managing Director, Accenture HR Services, and Alex Wilson, Group HR Director, BT, examine the role of outsourcing and how an outsourcing relationship can be effectively managed to enhance control—and help achieve high performance.

While governance and business process outsourcing (BPO) are both among the top of executive agendas, they can seem to be mutually exclusive.

For example, Sarbanes-Oxley, which requires company executives to vouch for the completeness and accuracy of the data they publish, also prohibits them from delegating these responsibilities to an outsourcer. Experience shows, however, that outsourcing can materially increase management control, and thereby strengthen compliance.

(more…)

The tenth annual IDC study of the top 100 worldwide outsourcing deals reveals fundamental changes in the outsourcing marketplace, including an increase in deals with more global reach, an increase in the number of serious competitors, a dramatic rise in network and desktop outsourcing, and a reduction in combined deal value. These developments demonstrate increased competition and customer demand for greater provider capabilities, and create pressure for outsourcers to alter their business models in order to successfully compete and expand in the coming years.

The total contract value (TCV) of the 100 worldwide outsourcing deals decreased by 3.1% from $70.1 billion in 2004 to $67.9 billion in 2005. The study finds a reduction in the number of both megadeals and deals ranging from $500 million to less than $1 billion TCV. However, the number of deals with less than $250 million TCV has seen a dramatic increase from eight in 2004 to 23 in 2005. The study also finds that the number and value of business outsourcing deals declined in 2005, while the value and number of IT outsourcing deals increased. Within IT outsourcing, the share of network and desktop outsourcing deals climbed substantially from 14.6% of total IT outsourcing deal value in 2004 to 32.4% in 2005.

(more…)

Shorter Average Contract Durations Driving Smaller Overall Contract Values, but Growth in Annualized Awards to Global Service Provider Community

TPI announced third-quarter developments in the global outsourcing industry through the TPI Index report. The third quarter of 2006 saw a decline in contracts by volume and value from the same quarter last year. The cause of the falling aggregate contact values can be tied to the decline in contract durations, especially for information technology outsourcing (ITO) contracts. Since 2001, the average duration of a Broader Market contract has decreased 12 percent. In ITO, it decreased 18 percent, while for business process outsourcing (BPO) it dropped five percent. Click here to view the media release.