Want to know what to outsource? Follow the money...
If you want to learn anything about the special challenges global organizations expect to face in 2010, follow the money. At last year's Orange Business Live event, overall cost reduction was one of the themes, and budgetary trends are pointing the way to crucial areas to watch as cuts in IT spending begin to subside. According to IDC, IT spending in 2010 will increase by 3%, reaching US$1.48 trillion in 2010, behind the $1.5 trillion recorded in 2008.
Trends in spending show that global IT departments have different priorities on their minds this year. Industry analyst Forrester points out that instead of there being a general trend towards outsourcing as there was during the last recession in 2001 to 2002, IT directors have mixed thoughts on the way forward. Roughly one-third of companies expect to increase spending on systems integration and projects, one-third increase spending on applications outsourcing and a third want to spend more on infrastructure outsourcing. These spend increases seem to be at the expense of contractors and IT consultancy, which will experience a decline. Even though about 40% of organizations say that they are still undergoing IT security consultancy projects, there's nothing to suggest that budget cuts would translate into greater network security problems or risk management breakdowns.
In fact, a refocusing on risk management brought about by terrorist attacks and flu viruses, seems to be the order of the day. IDC says that the usual beneficiaries of offshoring such as Bangalore and New Delhi could be superseded by Shanghai and Beijing as global delivery locations. These Chinese locations are being considered more secure against the threat of terrorism than historical favorites Mumbai or Jakarta. While for many firms that means spending money on diversifying their risk management facilities - primarily data centers - it should be well spent, considering the increasing amount of data that is vital to enterprise profitability. In fact, the desire to offshore data centers has even a rather literal turn in some quarters, with Google filing a patent to build floating data centers.
The latest report from Datamonitor shows that global firms are seeking more traditional locations for their outsourcing, although not the locations widely believed to be best. Datamonitor takes into account a wide number of factors such as the political stability, legal structure and national infrastructure when compiling its results. That's why the BRIC countries, thought to be among the world's best locations, rated distinctly below Ireland and Canada, even though those two countries have higher wage costs. Good alternative locations were provided by Eastern European countries like Poland and the Czech Republic and Hungary, although the usual rules about not underestimating the cultural differences in new locations still apply in 2010.
Optimizing or transforming?
'Transformation' has been such a buzzword in IT outsourcing it's hard to imagine any organization undertaking a project that isn't going to 'transform' their business. Unless, that is, it's going to be 'optimize' it. CIO magazine says that the top outsourcing trend for 2010 is a refocusing by organizations on projects that deliver value, remain within budget, and which get the job done, rather than offering aspirational goals such as transforming how business is done. This suggests that businesses have gone back to the drawing board, thrown away the transformational roadmaps (perhaps drawn up by the consultants they used to employ) and have redefined goals based on how much it costs to get them done.
That's just as well, as Gartner predicts that IT budgets this year will be back to 2005 levels. The analyst firm predicts that times will still be challenging during 2010, but that there will at least be a change from "cost-cutting efficiency to value-creating productivity." That may mean that there is less focus on the wage bill of outsourced staff and more scrutiny of the infrastructure and stability of the country where operations are outsourced. The biggest surprise of all in this scenario, if you follow the money, is that the dollar has slipped so much on international markets that some firms may even consider the US - the inventor of outsourcing - ripe in 2010 as such a country.