IT Outsourcing Trend

By Krishnakumar Madhavan, Head IT, KLA Tencor Software India

IT outsourcing is the use of external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions for business outcomes.

Advantages of Outsourcing IT

Outsourcing allows management to move the commodity services to Service company. This permits management to focus on the larger issues within the organization. Typically, the specialized company that handles the outsourced IT work boasts technological capabilities superior to the organization. Organizations view outsourcing as a cost-effective means to expand into other countries and new markets.

"The motivation for the outsourcing company is to make the SLA Metrics Green than the Customer satisfaction, which we call as “Watermelon effect”"

Disadvantages of Outsourcing IT

Outsourcing IT reduces or completely eradicates direct communication between organizations and clients. Limited communication impedes the relationship building process, which may lead to the overall dissatisfaction of the organization and client. The outsourcing organization loses complete control over all areas of the company. Project implementation timelines may suffer as a result. If the organization terminates the agreement with the outsourced entity, confidential, sensitive information becomes jeopardized sometimes.

The motivation for the outsourcing company is to make the SLA Metrics Green than the Customer satisfaction, which we call as “Watermelon effect”

Risks of IT Outsourcing

Organizations that outsource IT services run a risk of receiving poor quality work. Offshore outsourcing sites often experience high employee turnover and may capitalize on the organization’s limited technological capabilities, which leads to high-quality service being compromised. Outsourcing to foreign countries involves hidden costs, such as travel expenses and creating an infrastructure to manage operations. Companies that don’t plan accordingly counteract the financial benefits of outsourcing.

Minimizing Risk

Mitigating risk requires that the organization recognize cultural similarities between itself and the specialized firm. Working relationships often demand trust and geographic proximity; similarities may be found in historical context or a shared language. Outsourcing success usually occurs between organizations that operate in like industries. Understanding the technical language and best practices of an organization help to create strong working relationships.

Current Trends

Organizations begin renegotiating contracts with the specialized firms. Cost continues to be a major issue for companies and as such organizations look to ensure the value of their investment. Technology and software employment may continue to decrease even after the economy improves. Global service providers aim to capture a large share of IT work and service. Outsourcing continues to penetrate North American organizations despite economic downturns in the late 2000 decade. Government-based reforms stand to increase future IT spending by organizations.

Hybrid Cloud

Commodity cloud platforms increased the reach significantly. Public clouds offered by Amazon, Microsoft & Google are the most summoned after platforms for non-core processes. But fearing a breach in security, the organizations still prefer private cloud. Enterprises might employ Hybrid Cloud, a private cloud is preferred for core processes and the public cloud is preferred for other tasks and hiring people to integrate them.

Rise of Services Provider

In spite of having multiple vendors, standardization of the system and centralized solution of IT issues is on the rise. Also, with the advance of cloud-based solutions, for managing cloud-based applications on behalf of the client along with application deployment, designing applications, software products and maintenance.

Innovation

From the old concept of providing IT Solutions with Accuracy & Security, the demands are shifting towards the innovative solutions with Speed & Agility. It is a clear shift to a bi-model approach, combining supporting the business to bring the business, creating new products, services, and business models. Enterprises understand that digital technologies change are really fast, hence they look for not just execution, but the anticipation and innovation, the value matters more than the cost.

Security

Not only Software-as-a-Service (SaaS), with the rise of the Internet of things Security-as-a-Service (SECaaS) is the need of the hour. Not just the smartphone, any device that is connected to the internet, can be responsible for data leak. The everyday new threat comes alive and organizations might think of hiring a specialized security vendor. Service providers are sometimes seen as the mole in the security, rather they should facilitate security to break the notion.

Internet

The world is moving towards a highly automated lifestyle; almost every device is connected via internet. The demand for creating an enhanced user experience can only be met by the powerful IT system integration. Organizations are bound to look for perfect synchronization along with security for ancillary devices. This requires vertical integration of all platforms, data and system.

Robotic Procoss Automation (RPA) Into IT Services

Automation options are increasingly sought from the vendor; this is to further reduce human resource expenses. As there is a huge inflow of data from millions of smart devices, tasks like big data analytics can only be executed through the automation. The cloud systems are more and more run by the Artificial Intelligence. Automation can be the last resort when the system gets too big to handle.

Changing Competitive Scenario

Not just confined to India and China, the outsourcing has established its deep roots in Latin America, Eastern Europe, Africa and Southeast Asia. The pricing practices are bound to change and ‘outcome-based pricing’ can be expected as a future trend. Self-employed IT developers stand a better chance from the emerging countries. The industry might move to Insourcing, a concept of lesser offshoring with the increased options like multi-shore or near-shore.

Business Analytics

To foresee and invent a new approach by analyzing the existing data, the massive collection of information is essential to compete. It is required to understand patterns of interactions and human behaviour before any organization takes financial and infrastructural risks. The huge data can only be assessed by automated systems or experts of Business Analytics.

Virtual Work

Telecommuting is certainly a trend that has come to stay, working remotely with outsourcing providers takes advantage of this tendency, recognizing that any modern service oriented company has come to experience and accept this new model.The possibility to do real-time monitoring and daily meetings, among other agile practices, makes integrating seamlessly with an outsourced team quite possible while aiding in providing low workforce costs and improvements to your company’s internal processes.

Conclusion

The ecosystem of outsourcing is constantly changing, there is no doubt about it. Factors of a legal, economic and the nature of the markets make outsourcing service providers aware of the need to face significant challenges in order to stay alive.

Only those who understand and react to such changes and keep working to stay abreast of the outsourcing trends will continue to have a share.

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