What are some IT outsourcing trends

The trends in IT outsourcing

The clouds hang over everything and they are thickening more and more - that is the most important thing you need to know about the decisive developments in the IT outsourcing market at the moment. The line between traditional outsourcing and services in the cloud computing category seems to be almost blurring. For example, Pierre Audoin Consultants (PAC) speak of “cloudification”. According to PAC consultant Karsten Leclerque, this trend has set the core changes in the international and also in the European market in the past two years. This applies to IT outsourcing in general, to SAP services in particular and also in a sub-segment such as SAP hosting, which Leclerque is currently investigating for a study on the German market. “The customers obviously want these models,” says Leclerque.

Specifically, the term cloudification means scalable resources and usage-dependent billing. In a highly diverse provider and user landscape, this usually happens in a heterogeneous manner in such a way that, in addition to a fixed base amount for services, flexible price components are also agreed. Two years ago, technology giants such as HP, IBM or T-Systems offered such mixed billing, but this has now become the market standard, according to the PAC expert. According to Leclerque, cloudification also means that service providers, in addition to their special services, for example in SAP hosting, also want to score points with their customers with offers on a marketplace for Software-as-a-Service (SaaS). The message is that there are nice and affordable additional services next door in the cloud.

Outsourcing mega deals 15 percent below previous year's level

The challenge for the user is to produce a consistent comparison of the costs incurred for all the services of the most varied of colors. Otherwise, they can look forward to prices that have been falling for years - and that in an overall market that has not been overbearing for a long time, but is growing steadily. This reliable, generally boring growth path should be kept in mind when reading reports on market developments - because these often paint a very colorful and turbulent picture. Recently, new figures from the US consultancy Information Services Group (ISG) gave the impression that the outsourcing market in Europe had collapsed dramatically. ISG regularly adds the annual contract value of megadeals with a volume of at least four million euros. In the EMEA region, it was 3.4 billion euros in the first half of 2013, 15 percent below the previous year's figure and thus as low as last in the crisis year 2009. However, ISG always only measures the megadeals, and here there are occasional extreme fluctuations in the short term, which are random could be.

In a chronologically opposite perspective, the analysts at Gartner are already pointing out that Generation Y, who grew up with digital technologies, will also change outsourcing. In the long term, service providers should be prepared to make the end-user experience the second pillar of outsourcing alongside customer satisfaction. Beyond these short-lived and strategic issues, all in all, PAC is seeing healthy growth. A sub-segment such as SAP hosting that is still comparatively small and innovative in some regions is regularly growing significantly faster than the overall market, according to Leclerque.

According to a forecast from Gartner, the global market for IT outsourcing will grow by 2.8 percent this year - currency-adjusted by 5.1 percent - to a volume of 288 billion US dollars. “The deployment plans for new IT outsourcing remain on the right track in all service line segments,” commented Gartner analyst Bryan Britz. Nonetheless, Gartner has revised its original forecast downwards slightly, which is justified by the continued limited IT budgets, the sometimes uncertain economic conditions and, above all, the trend towards cloud-based delivery models. Gartner consistently excludes SaaS from the IT outsourcing observation in its figures.

Data center outsourcing in creeping decline

The turn of large companies to hybrid IT strategies and the growing demand from small and medium-sized companies for Infrastructure-as-a-Service (IaaS) are driving growth rates in the cloud and data service segment; In contrast, the outsourcing of data centers is in creeping decline because more and more IaaS-based workloads are migrating to the cloud. The trend towards bring your own device (BYOD) and the lower support costs for end-user devices associated with the increasing number of private end devices are dampening the development of outsourcing in this field. All in all, Gartner continues to register double-digit growth rates in the Asian region; In North America there is a general trend towards managed service agreements with annual billing with the aim of better costing.

PAC predicts that up to 2017, SAP-related services will grow by an annual average of eight percent faster than IT services as a whole, which is also a healthy five percent. In the SAP home of Germany, PAC expects an increase of five percent over the same period. This underlines the maturity and SAP penetration in the German market. There is also potential for growth there, but above all in the international market. According to PAC, 578 billion euros were turned over worldwide with IT services in 2012, 235 billion euros of which was with outsourcing. Of this, SAP-related services accounted for 45 billion euros, 59 percent of which was allocated to consulting and system integration, 22 percent to SAP application management and 19 percent to SAP hosting.

PAC analyst Leclerque points out that the "cloudification" of outsourcing up to now meant pricing and scaling models based on the cloud, which from the user's point of view were sometimes placed in a competitive relationship with particularly cheap services from the public cloud. In the meantime, Amazon Web Services (AWS) has become a certified SAP partner that meets the required security standards. In principle, service providers therefore have the option of developing services based on the AWS platform in the public cloud. Even if, according to PAC, not much has happened in this field so far, this could turn the price spiral further down in the future.

Isolated insourcing is not a trend

According to Leclerque, the fact that General Motors and Daimler have recently started to operate their once outsourced SAP services again on their own does not reflect any trend. Both companies jumped on the IT bandwagon at full speed a decade ago, then outsourced them just as massively and now apparently corrected this in part - also in light of the fact that the automotive industry, which is considered a particularly attractive employer for IT professionals, is fairly effortlessly top - Can recruit people. But this is nothing more than an industry phenomenon. In the SAP environment, too, it can be assumed that users - also thanks to the trend towards standardization - usually achieve their primary goal of reducing costs with little effort, which is why quality aspects are playing an increasingly important role.

In terms of market size, T-Systems, HP, Atos and IBM lead the PAC market study on SAP hosting in Germany. Since Wipro has only had its own data center resources from among the large Indian service providers in SAP's home country, the offshoring giants have not played a significant role in this segment in Germany so far, according to Leclerque. The Indian providers have now understood the importance of cultural factors for their business; The ongoing expansion of localization in continental Europe through native speaking contacts speaks for it.

Fluid boundaries between software providers and service providers

As IDC found a few months ago in a study on the environment of the SAP implementation partners, here too the boundaries between software providers and service providers are becoming more and more fluid. This is all the more true since SAP has allowed major system integrators to sell software directly and users are increasingly looking at SAP services in their strategic dimension. “It is best practice when system integrators and SAP deliver solutions together and smoothly,” says IDC analyst Gard Little. According to IDC, new SAP technologies such as SAP HANA, mobile solutions and industry-specific rapid deployment solutions bring new momentum to this business area. So an aspect that complements the trend towards cloudification.