Outsourcing Not Just IT Strategy, But Biz Strategy: IDC

Challenging macroeconomic conditions have encouraged organisations to change the way they look at outsourcing. The fact that managed services posted much stronger growth than IS outsourcing supports IDC’s assertion that smaller, discrete outsourcing contracts are proving to be far more popular than large, holistic outsourcing contracts.

IDC recently concluded a survey on Managed Services in India. The results of this survey further reiterate the point that changing business dynamics are driving the demand for managed services in the country. Indian organisations, faced with capital crunch to support strategic initiatives are struggling to align their current resources. The organisations are oriented towards improving their financial management, lowering the cost of operations and driving innovation. These corporate imperatives are forcing the Indian companies to look at managed services as an obvious choice. Over 50 percent of the respondents indicated that these imperatives are driving their companies to increase the overall spend on managed services.

“More customers are realising the value that managed services are capable of providing for their businesses,” said Kavita Bhadauria, Research Manager for IT Services & Software at IDC states. “Indian organisations are increasingly accepting that outsourcing is not just an IT strategy anymore, it has rather become an integral part of the business strategy.”

The direct value of a successful outsourcing engagement can be measured in terms such as better-run IT operations, improved up-time, faster issue resolution, and most importantly, proactive monitoring and support for customers. Also the intangible and indirect value of outsourcing is the impact that it can have on the business results in the form of better return on investment and faster time to market, among others.

The survey findings also indicate that the key factors contributing to a successful managed services engagement include level of flexibility in the contract, spirit of partnership between client and service provider, and communication as the foremost criteria.

However, these organisations attributed the failure of contract to lack of timely response and gaps in service level attainment. Almost 25 percent of the respondents indicated that they have executed early contract renewals and when asked about reasons for doing so, they quoted pricing negotiations as they key driver. “This is a clear indication of lack of partnership approach and mindset by both the services vendor and the customer,” said Venu Reddy, Research Director, IDC India. “The lack of partnership approach will lead into price based discussion and SLAs that do not address the business needs. Until this is addressed the services engagements will continue going through these early renewals and painful negotiations”.

When asked to predict their overall spending on managed services in the 12 months following the time of survey, 63 percent respondents were confident that the spending on managed services will increase, while 28 percent predicted it to remain the same, leaving only 10 percent who expected the amount spent on managed services to decrease over the year.

The Indian organisations are set to increase their overall spending on managed services, which represents a ripe opportunity for service providers. “The increasing numbers of devices, applications and expanding network and infrastructure hardware is only adding to the IT management woes,” said Bhadauria. “Managed Services Vendors should take a step back and think about what more they can do to ease the pain for their customers. Providers will need to pay attention to what their customers are asking for. The days of offering vanilla managed services are over and customers are asking for what more do providers have in-store and how they can bring more value to the table. Other than cost savings, customers are also demanding well engineered service level agreements (SLAs) and strong contract governance systems.”