Friday, June 29, 2007

Some IT outsourcers will "cease to exist"

I keep banging on about a strategic shift in firms' appetite for traditional outsourcing, but with good reason it seems. In its Top Predictions for IT Organisations and Users, 2007 and Beyond, Gartner paints a not too rosy picture for the Top 10 IT outsourcers.

According to Gartner, the reduced number of large contracts above $250 million, increased competition, and a reduction in contract sizes have placed great pressure on traditional "takeover outsourcing" providers, and the move towards selective outsourcing has paved the way for non-traditional providers(software-as-a-service, utility computing, managed services and specialised hosters) to enter the bidding.

"Through 2009, at least three of the top 10 IT outsourcers will cease to exist in name, with their services and product portfolios divided into spin-off companies, divestitures, longtime partners and faceless third-party aggregators. Providers of all sizes will rationalize portfolios based on desired regions, service lines and vertical industries," says Gartner.

It is no secret that revenue growth for the top IT outsourcers in Western Europe, North America and Japan has been slowing and contract terms and values have been declining.

Interestingly, while revenue margins for Indian IT outsourcing firms such as Tata Consultancy Services and Infosys have been increasing, Gartner predicts that only one Asia/Pacific-based service provider will make the global top 20 IT service providers (based on IT services revenue) through 2010. Currently, Fujitsu is the only Asia/Pacific vendor in the global top 20 based on revenue.

Gartner says Tata Consulting Services (TCS) is the only Asia/Pacific-based service provider in the global top 50. Infosys is close behind, but at its current growth rate, Gartner predicts that it will likely be in the top 50 in the next two years.

"Indian service providers generally have been growing 30% to 40% annually and are gaining market share. However, this growth is difficult to sustain and would still not be enough to put TCS or Infosys in the global top 20 without a major acquisition," says Gartner.


barmijo said...

At 3tera we're on the periphery of this market, enabling utility computing with our AppLogic platform, but even in our space we can feel the shift. However, whenever there's risk, there's opportunity as well. Some outsourcing firms have been exceptionally aggressive in evaluating and adopting utility computing.

Enterprise IT shops are going to need professional services to move into the utility model. Firms that embrace these technologies early and learn how to implement them effectively will be able to lead their customers effectively. Those that try to stick to billing for massive labor bills . . .

CityUnslicker said...

I agree with this. The Indians are catching up with our wage levels very quickly; much quicker than they expected too I think.

Anonymous said...

A note of reality needed here on TCS..I used to work in Tata Consultancy Services earlier. Frankly, I was shocked to see the level of staff exploitation as well as lack of ethics in their client work culture, contrary to the general impression created by them to the Industry abroad. I remember that they completely copied a major Benchmarking study from one client to another without any sincere effort altogether. It is sad to see the Industry running after and incredibly enriching these kind of firms, who fundamentally grew from highly unethical and exploitation driven business models. Also, it may surprise many of us to know the hard fact that none of the good and qualified professionals stayed long in TCS over the past many years. All the good genuine professionals with initiative and ideas were harassed and suppressed by the highly predominant low quality and less educated old timer staff in TCS, and left the firm after demotivation in this environment. Result it that all the low quality and less educated people have stuck to TCS past 10-20 years and occupying most of senior positions nowadays, while 95% of the good qualified people left due to demotivation and harassment etc.. LET THIS BE A CHALLENGE TO TCS, IF THEY CAN REFUTE THIS FACT.. There are hundreds and maybe thousands of ex TCS employees who can vouch for this sad fact..