Outsourcing 2.0
Posted by Kiran Narendran on Friday, July 2nd, 2010‘A Blessing in disguise’ – This is exactly what the IT/ITeS industry has to say about the recent recession. The 2008-2009 recession, followed by the collapse of the financial services bellwether, Lehman Brothers, has transformed the total dynamics of the industry. New business models evolved as customers squeezed their IT spend and demanded more work. They were perhaps right; the credit crunch had hit hard on their businesses and they were left with no choices apart from shoe-string budgets for IT-ITES needs. Vendors or outsourcing providers also responded in a similar fashion. But, the employees felt the heat most. Salaries were reduced, lot of employees were laid off and company budgets were reduced across the globe. By adopting such life-saving measures, most businesses were able to withstand the pressure. However, life hasn’t been the same ever since.
Top vendors confirm that clients were asking for more services to be provided for lesser money. How could that be possible in an industry with a growth rate of more than 15% per annum? How could vendors sustain their growth momentum and, more importantly, their profit margin under the circumstances? It was hard for companies to sustain their growth margin solely by reducing their capital expenditures. Instead, they had to look for ways to increase revenue simultaneously. That, actually led to the evolution of the business model where billing would be based on the business outcome rather than the employees work or time. Cloud Computing came into limelight as a result of acceptance of this new model.
In Cloud Computing, you needed to pay only for the services you availed of and didn’t have to bother about the hardware and other expenses. This was more than acceptable to clients because they had to pay more only if they were getting more. The disadvantage though, for the vendors, was the low margins. Vendors now looked for multiple contracts from the same client to sustain their revenues. They proposed a complete outsourcing package to clients by beefing up their portfolio and this happened through acquisition of niche players also. Clients too, were looking for a similar alternative and they awarded bulk contracts to the same vendor reducing the number of vendors drastically. By this, clients could negotiate more and concentrate on fewer vendors.
This new trend has forced outsourcing companies to integrate IT and BPO services to win more contracts. Many top IT-services players have added BPO to their portfolio to provide end-to-end service to their clients. Conforming to this model oil giant, British Petroleum, has reduced their number of vendors from 40 to 6. BPO players are also striving to add IT services to their portfolio. To this end, they are partnering up with small IT companies to create simplified systems that make life easier for their clients. So the recession has helped clients to get more work done at a lesser cost. As for vendors, it has aided in the expansion of their portfolio and area of expertise.For the employees, it has been an opportunity to expand their skill-set and hence demand bigger salaries. A burst in the economy is inevitable after a boom and our economy is slowly gearing up for another boom. This is a natural cycle and will prevail until the expiration of earth!!
Tags: BPO, cloud computing, IT Services, Outsourcing, Recession
2 Responses to “Outsourcing 2.0”
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Hi Narendran,
I like the article. I think you have fixed the relevance of cloud computing in a very simple and effective way.
Best wishes,
Augustine
how long does outsourcing move.? the pace is something which keeps varying like anything. as mentioned about the cycle, it rotates. its natural, none can stop it. lets wait till the tied returns.