IT Infrastructure Services Offshoring 2.0

While the offshored leveraged outsourcing industry has grown in the last few years in its first phase of evolution, it will soon need to morph and change the traditional approach due to the now pervasive business environment conditions. Some of these key trends being:

• The shrinking labor arbitrage makes a poorer business case by just taking a people-t0-people replacement cost. An offshore FTE used to be few times cheaper to an onsite FTE. They are still cheaper to hire but the difference has shrunk dramatically and continues
• Most biggies (Tier 1 outsourcing players) who were traditionally providing services from local countries in US, Europe now have a big offshore story. In fact for some, offshore delivery centers are now comparable in size to traditional offshore based players
• Most services are now commoditized except those lock-stock-barrel deals. These deals are typically blended with asset acquisition and re-badging which some of the larger players are embracing but see it impact their operating model and more importantly profit models.
• The outside trend of IT being more aligned to business, need for stronger business case and charges linked to business value generated ( including trends like utility computing, transaction based charges etc.). With chargebacks being explored as a sign of maturity in IT ops, the CIO is supposed to lead a profit center rather than a perpetual cost center

With these the following will emerge:

• Striation of services, with finer division in SLAs and quality of infrastructure based on the business process being supported
• Tremendous focus on SLAs and identifying meaninful metrics for managing the overall Quality of Service
• Service delivery out of new havens of offshoring in Asia Pacific and East Europe
• Cost pressures which have till now not been felt since the labor arbitrage often masked incidental costs which the companies were ready to absorb due to high margins

In all these the current offshore based companies in IT Infrastructure Management or Remote Infrastructure Management (RIM) will focus more on innovation. They need to innovate themselves to adapt to the changing waves. This will see some existing players drop the race ( as laggards if they fail to read the trend and act) and also see some new players emerge who may not be at the top of the pack in wave 1.0 but will read the trends and emerge ahead in the wave 2.0.

Innovation will come around delivery models to deliver services, automation, costing models and through strategic alliances. There will also be a lot of focus on processes as they will try to run the same from these new found destinations like Asia Pacific and East Europe.