What’s in Store for Outsourcing in 2009?

Source: IT World

By Executive Brief

"Whenever there’s a downturn people outsource more, not less. Organizations want to take costs out wherever they can,” says Gartner analyst Linda Cohen. In late 2008, Gartner also reported that 44% of their survey respondents planned to increase their IT budgets in 2009, while 37% wanted to leave budgets at the same level. Only 19% of respondents were planning to cut their IT budgets.

As we face a more challenging economic climate, outsourcing will still flourish, only differently. 2009 could be a transition year for the industry, and as recent political, business, and technological changes continue to slowly pave the way for recovery, those who are gearing up for the eventual turnaround will benefit most. There are plenty of reasons to be positive about the role that outsourcing will play in the global economic resurgence, and following are some of our projections for the industry in 2009.

Cost will be the deciding factor

Two things will be on top of the boardroom agenda this year: bringing down operating costs and remaining profitable. Offshore outsourcing, which leverages cost-effectiveness, will figure prominently in corporate strategies within the next 12 to 18 months.

Outsourcing deals will be consolidated

TPI reported last year that there would be significant changes in the nature of outsourcing, such that multisourcing would be consolidated to, again, cut down costs. Buyers believe that dealing with a limited number of vendors will minimize vendor selection and management costs. Moreover, because due diligence will be cut down significantly, buyers can expect faster project turnarounds.

Outsourcing pay scales will plateau

It has become difficult and costly to retain consultants in traditional outsourcing destinations, such as India and China. Attrition rates in recent years grew by double-digit percentages, no thanks to skyrocketing salary expectations among consultants, resulting in service interruptions and additional costs of re-staffing. Outsourcing buyers have wizened up by choosing nontraditional outsourcing destinations where attrition is kept at a level pace and salary expectations are competitive. As deals move towards other destinations, traditional outsourcing meccas will streamline payrolls and fringe benefits.

The fittest shall survive

Buyers will pressure service providers either for discounts or for add-ons. They can no more afford projects that overshoot budgets and miss schedules. Whether outsourcing providers are embracing process orientation or iterative development, those that have established solid reputations in their chosen strategies will thrive through 2009 and beyond.

Green will be in

Efforts to curb global warming and the Obama-led greening of many industries will result in the inclusion of green policies and processes in vendor selection due diligence. It will become the norm, therefore, to establish environment-friendly project management practices and corporate guidelines.

Outsourcing firms will join forces

For outsourcing firms with cash, 2009 is the best time to shop. For firms that are struggling with their books, a way to survive is not to sign just any deal, but to join forces with their more stable counterparts. Expect more consortiums, consolidations, and takeovers this year.