"One thing is certain, change is happening but the industry is now mature enough to embrace that change."
ALEX BLUES, IT OUTSOURCING EXPERT, EXPERT, PA CONSULTING GROUP
The 2011 conference of Nasscom – India’s IT outsourcing industry lobby – proved that the IT industry has grown up.
That was reflected not only in the scale of the event – 3,000 delegates and 200 speakers – but more fundamentally in that it no longer felt like an Indian conference but a global one that happened to be held in India. The discussion was all about the maturity, scale and range of the industry as it adapts to customers’ changing needs.
Unlike last year, there was firm evidence that growth has returned. There was plenty of optimism, but equally a recognition that there will be big changes.
Purchasers of IT services no longer just want to outsource mundane technical tasks for a lower cost.
They now want focused technology solutions that deliver particular business outcomes, whether that is quicker processing, or higher volumes, or a specific percentage cost reduction.
As Arvind Thakur, chief executive of NIIT Technologies, says, “[customers] want complete solutions and they want you to take complete accountability for these solutions”.
Purchasers are increasingly applying pricing formulas based on agreed outcomes, which is bringing focus but also challenges.
This was summed up by Ramakanth Desai, senior vice-president of Wipro, the software company. He said, “we are able to link the outcomes to the value we are delivering but quite often both the customer and the vendors are unable to define the boundaries very clearly.”
All this is transforming the relationships between buyers and vendors. Purchasers are less likely to be found in the IT department and will more often come from the core of the business.
Vendors have to adapt to talk to those purchasers in a language they can understand and offer them a much broader range of skills. Technical knowledge will no longer be enough – purchasers will be looking for a detailed understanding of their business.
Ganesh Natarajan, chief executive of Zensar, said, “this has matured the industry ... because we have moved from implementers, to being able to jointly discuss value creation.”
That is one of the reasons why we are seeing the growing strength of “tier-two” niche companies.
They have the flexibility and agility to focus on particular business needs or sectors, and offer more in depth insight into clients’ requirements. In future, they will present more of a challenge to the big volume players.
As a result, we are likely to see further consolidation. This will range from niche businesses buying other niche businesses to strengthen their position in particular sectors, to traditional legacy suppliers having to merge to survive as their markets diminish.
However, not only suppliers will have to change. The traditional role of the chief information officer is also being undermined.
Detailed technical knowledge is becoming less important. CIOs have to adapt to a world where the average laptop or mobile phone user has access to sophisticated technology that used to be the preserve of the IT department. CIOs will need to extend their skills to survive, and to provide a much broader input to the business as a whole or they will end up redundant in every sense of the word.
All these changes will be accelerated if cloud really becomes mainstream.
There is still a huge divergence of views as to whether it will stay as a peripheral option or not. The sceptics have dubbed it the ash cloud and highlight that concerns over integration, security and lack of co-ordination still have to be fully resolved.
In contrast, evangelists such as Francois Enaud, chief executive of Steria say, “It is a real trend, its fantastic, a revolution,” and forecast 25 per cent of all outsourcing business will be cloud-based in two years.
It is likely that 2011 will determine who is right, as the industry stops talking about cloud and starts implementing it. That will be a test of whether it gains momentum across mainstream business activities and applications.
One thing is certain, change is happening but the industry is now mature enough to embrace that change.
So by next year’s Nasscom we will probably see more IT providers adding value to their clients by meeting specific business needs and being measured and rewarded on the outcome; stronger niche companies challenge the top tier and taking market share and a wider division in the CIO role between those who are business driven and those who remain technologists.
Alex Blues is an IT sourcing specialist at PA Consulting Group
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