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Outsourcing Achieves Mixed Customer Success Record
A 2011 IDG Enterprise Outsourcing and Service Providers survey of 1,176 IT executives illustrated that a number of U.S. companies using outsourced services have brought those same functions back in-house.
For example, take desktop management. About one-fifth of the survey participants (17%) outsource this function and 9% more plan to do so in the next year. But another 6% that are currently outsourcing desktop management say they will bring this function back in-house in the next 12 months, and 10% more say they had previously tried it but later brought it back in-house during the last five years.
The numbers suggest that 17% are happy outsourcing desktop management, 9% are considering it, and 16% will or have already abandoned the outsourced service. Four other functions were reviewed the same way.
Corporations are typically more content outsourcing neatly compartmentalized functions like Web hosting and email, but clearly companies servicing all of these categories have room for improvement. Outsourcing opinion are quite mixed at more of a strategic level as well. When asked, "How effective is your company's outsourcing strategy as a tool for enabling your company's key business goals?" 18% said extremely effective, 59% said somewhat effective and 22% said not effective.
So then why outsource? Survey participants said: to access skills not available in-house (52%), for cost reduction (50%), to manage variable staffing needs (44%), to support or enable new business initiatives (35%) and to improve business or technology processes (42%). Interestingly, of the functions and business processes currently outsourced, 75% on average are provided onshore, 8% are nearshore and 16% are provided offshore.
India's Top 3 Challenge the Global Top 3
Which of the below announcements created the higher impact within the outsourcing and global systems integration industry?
If the combined HP and EDS mega acquisition seems the clear choice, consider the newest outsourcing and global systems integrator forecast by analyst firm Gartner. According to a mid-August 2008 research news report, the research firm suggests that Indian-based Tata, Infosys and Wipro are emerging as the next generation of IT services megavendors. Gartner regards these three system integrators and IT services firms as the "India-3."
According to Gartner analysts in their research report, "These (India-3) vendors are increasingly being considered for strategic service deals, and will augment or, in some cases, replace today's acknowledged megavendors by revenue -- IBM Global Services, Accenture and EDS -- in this space by 2011." The Gartner report was released after the HP/EDS acquisition was announced but before it closed in August 2008. A look at the size and growth of the global IT services firm is illustrated below.
Gartner researcher Partha Iyengar commented the India-3 continued to post dramatic growth even after entering the $1 billion-plus revenue threshold. That's a level achieved by only 100 service enterprises globally, and normally a level that slows an IT service firm's continued growth as the company reaches a level of maturity.
Tata Consulting Services (TCS) is the largest and possibly well known of the India-3, with just over $5.7 billion in 2007 revenues. Its sales growth over the past three years was 32% in 2007, 45% in 2006 and 33% in 2005. Infosys demonstrated growth of 35% in 2007, 44% in 2006 and 35% in 2005. Not to be left behind, Wipro achieved revenue growth of 38% in 2007, 36% in 2006 and 34% in 2005.
When compared against the American IT services giants, IBM's $54 billion revenue achievement saw a 12% growth in 2007, 2% growth in 2006 and 2% growth in 2005. Accenture grew at 4% in 2007, 8% in 2006 and actually lost a half of 1% in 2005. EDS faired much better with 18% growth in 2007, 7% growth in 2006 and 13% growth in 2005.
The shift in global IT services is occurring at a material pace. While the American IT services firms have growth in the single digits or low double digits, the India-3 have been growing at 30% to 40% annually.
The India-3 firms are riding several helpful trends and economic conditions. There is a clear increasing acceptance of offshore outsourcing and India has emerged as a global outsourcer and economic power. Further, India's population is growing to the extent that the U.S. Census Bureau forecasts that the country will exceed China as the world's most populous nation by 2026.
According to analyst firm Gartner, the India-3 IT services companies share four critical competencies that fuel their success: "process excellence, world-class HR (human resource) practices, providing high-quality services at a low cost, and the gaining significant and disproportionate 'mind share' compared to their actual size."
However, the India-3 have much growth to achieve before they catch IBM, Accenture and HP/EDS. For one critical metric, Iyengar suggests that the India-3 must come closer to the U.S.-based firms' revenue-per-employee (RPE) figures to sustain their continued growth. Over the prior four years, IBM Global Services, Accenture and EDS have earned RPE in the range of $130,000 to $192,000. The India-3 have ranged from $32,000 to $51,000, demonstrating a sizable gap.
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