...of anywhere between five and 20 per cent on IT services deals, according to predictions by Gartner.
In addition, outsourcing megadeals - contracts worth hundreds of millions of pounds to deliver a range of services over multiple years - have also enjoyed something of a comeback recently, as shown by the likes of BT's £500m contract with the NHS, IBM and CSC's £300m deals with the government's Identity and Passport Service, and a £685m deal for HP-EDS at Aviva.
What about offshoring then?
Choosing where services will be provided from is a key decision for a business opting to outsource. Will it be onshore, in the same country that the company is based; nearshore, in a nearby country; or offshore, in a more distant country?
India is the destination of choice for offshoring
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India is the global hub for offshoring, with an IT and business services industry worth $58bn in 2008 and a 50 per cent share of the global offshore ITO and BPO market.
However, India faces fierce competition from other countries. Some, like Russia and China, are challenging India for low-cost design and infrastructure services and software development, while countries in Eastern Europe and Latin America are also attracting business from Western companies, such as the UK and US, who want to nearshore.
More recently the governments of Vietnam and Egypt have been investing in improving their education systems and local infrastructures to attract more offshore work.
These challenges come at a time when India is struggling to produce enough graduates who are qualified to carry out the offshoring work. Despite this, industry watchers believe India's headstart in the market means it will continue to dominate for decades to come.
Are Indian companies the largest outsourcers then?
Indian outsourcing companies may be big players in the world of offshoring but they are small fry in the wider outsourcing market - for example in 2008 one of the largest Indian providers, TCS, has less than one per cent of the global market share for IT services, compared to IBM's share of almost nine per cent, according to research by Pierre Audoin Consultants.
Western outsourcing providers such as IBM and HP still dominate the outsourcing market overall.
Is outsourcing forever?
Not at all - take the example of Transport for London (TfL) which has already ditched the majority of its outsourcing contracts, with former TfL CIO Phil Pavitt saying he cut headcount and desktop and support costs by bringing 15 of 17 contracts back in-house.
Meanwhile, other companies are considering bringing some offshored IT and BPO operations back in-house to the UK, spurred by the recession which pushed them to reduce their in-house running costs, making it potentially cheaper to run the services themselves.
What does the future hold for outsourcing?
One of the biggest future trends in outsourcing has surely got to be cloud computing - where a company's software or infrastructure services are hosted and provided remotely by their supplier.
Cloud services are often pitched as having cost benefits over their on-premises counterparts - for example, users can save money as they require less hardware in-house and have lower energy costs accordingly. Cloud services can also be used by companies that need to rapidly scale up software or hardware use for a limited period of time, such as during the lifetime of a particular project.
Major Western players, such as IBM, and Indian outsourcers, such as TCS, have already launched their services in the cloud, with smaller suppliers also in the process of developing platforms.
For everything you need to know about cloud services check out silicon.com's cloud computing cheat sheet here.
Comments
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1. Richard Barker
Whilst the article correctly identifies IT as the most commonly outsourced business area, a reluctance to undertake capital expenditure and a ‘necessary evil’ attitude to technology still remains endemic among many organisations. The resultant poor skills and a lack of senior level ‘understanding of’ and ‘commitment to’ IT is leaving businesses vulnerable to system failure and data compromise.
Many businesses are reluctant to, as they perceive it, relinquish control to a third party. But in reality these organisations currently have minimal control over IT; data is insecure, even if it is located within the organisation; operational performance is jeopardised by limited IT skills; and business change or expansion is compromised by the lack of IT expertise required to assess the merits of new technology opportunities.
Outsourcing IT allows an organisation to enjoy far greater control over its business processes. Working to a clearly defined service level agreement and contract, the contracted organisation will ensure networks and software are maintained to deliver continual high levels of performance. In reality, opting to outsource the IT function to a third party not only delivers far more control but it can significantly drive down costs by leveraging economies of scale and providing low cost access to a broad, experienced skills set.
By combining a business-led approach with up-to-date processes and policies that deliver far tighter IT management, a business can achieve good operational performance and a reduction in downtime that delivers quantifiable bottom line benefits whilst reducing overall IT costs and providing unprecedented levels of control.
Richard Barker
Managing Director
Sovereign Business Integration