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Thursday, January 19, 2006

Outsourcing & Process Centricity

The news in the IT circle is the announcement of yet another mega deal win by an Indian HQ vendor. I particularly liked the statement from their stable that they conceptualised the "Blue ocean"strategy and created uncontested market spaces, by recognizing that the application outsourcing business was being increasingly commoditised and that it was coming under pricing pressure and so decided to chase large deals that would bring a significant transformation, to move up the value chain, and go for multi-service deals with application and infrastructure components. This seems to be paying off and it is now clear that there is a shift in the nature of outsourcing. As can be seen large companies are seen to be changing the way,they outsource. An examination of the biggest deals shows more companies are inking business-process outsourcing (BPO) deals, in which they turn over to a vendor the responsibility for a functional area such as human resources or logistics. As BPO deals have risen, traditional I.T.-centric outsourcing services have declined. There also are more players competing for the biggest deals, says David Tapper, director of I.T. outsourcing, utility and offshore services research at IDC. The numbers say it all:
- The total value of the top 100 fell slightly from $69.1 billion in 2003 to $68.3 billion in 2004. The value of the minimum qualifying deal rose 5% to $184 million.
- BPO contracts accounted for 25% of the total deal value, up from 15.2% in 2003. I.T. outsourcing deals lost share, falling to 75% of total deal value, from 84.8% in 2003.
IDC identifies besides that incresing importance of key business drivers for BPO adoption suchs as cost management, increasing focus on core competencies & risk management, as seen by business, the key trend to be noted is multisourcing, a tactic that divides work among multiple outsourcers. Multisourced deals accounted for $15.9 billion - or 23.3% of the total value of the top 100 deals. The multisourcing trend parallels a decline in the number of megadeals - contracts valued at $1 billion or more. Echoing this,it is now seen that deals valued between $500 million and $999 million grew, accounting for 29.7% of the top 100 in 2004, compared to 15% in 2003.
As I wrote earlier,most of the indian big players are said to have hired big six veterans to go after such deals. An acquisition of the big players may be the final assault on the dominance of big six – but this could mean that as seen by outsiders, the Indian companies may need to have a different mindset to manage –(with limited margins and more long term in their outlook). It may disrupt the traditional economics of the indian players, but nonetheless would be a move much needed in time. Certainly, I expect that one/two acquistions would be made by indian players in this space in 2006. This is possible, as adaptability and speed of operations have always characterized their growth in the last decade – the important thing is to not lose sight of humongous opportunities that lay in front and go after them as aggressively as they used to do while growing.

Category :, Emerging Trends
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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
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