Big business

Any other considerations aside, cloud computing will have one impact on the outsourcing and managed services market - efficiencies. All the efficiencies that cloud brings to enterprise environments will be music to the ears of outsourcers that have to rely on efficiencies, economies of scale and critical mass to make the biggest bang for their (customer's) buck.

The bang is going to be quite big too, if a recent survey, Outsourcing 2010*, is correct.

The survey reveals the recent economic crisis has actually been good for outsourcing. The company says over the past 18 months, outsourcing has become more focused on delivering value. Over 50% of the surveyed respondents emphasised that cost saving was the main reason they continued to outsource services.

According to the report: “The global economic crisis has had a direct impact on the existing outsourcing programmes at most companies. In January 2009, 42% of respondents indicated that existing outsourcing contracts at their companies were unchanged from 12 months earlier. By September 2009 this was down to 19% and by January 2010 it was 16%. Companies have clearly been changing their current outsourcing programmes in response to the dramatic economic changes.”

Most companies, it says, are looking to increase their outsourcing activity as a result of the crisis, with 56% of respondents indicating a planned increase in the size and scope of programmes.

The survey, says Accenture, shows there is a trend towards the adoption of new technologies. The survey reveals that in January 2009, 70% of customers participating in the survey said their companies were examining either software as a service (SaaS) or cloud computing as a new approach to outsourcing, and by January 2010 that figure had grown to 88%.

We're seeing a lot more impetus and focus on outsourcing non-core applications.

Clive Butkow, CTO, Accenture

Of all the new technologies favoured, cloud computing is taking the lead, and 86% of delegates at The 2010 Outsourcing World Summit said they believed cloud computing is the best way to deploy technology-based services and resources over the Internet.

Accenture CTO Clive Butkow says the current expansion of bandwidth in Africa and South Africa (Eassy, Seacom) will enable rapid take-up of cloud-computing services.

The Accenture research shows that outsourcing providers are also on the same track when it comes to the adoption of new technologies, with 62% of providers confirming that they are exploring these technologies for the delivery of services to their customers in January 2009. By January 2010, this number was up to 66%.

“We're seeing a lot more impetus and focus on outsourcing non-core applications,” says Butkow. “In the old days, it was a cost driver - outsource the old rubbish at a lower cost than the company can maintain it for. We're not seeing that, we're seeing outsourcing as turning IT and IT infrastructure into a strategic asset that can be turned into a revenue driver and growth driver. And we're seeing it globally.

“Here's where we're a little behind the curve,” he adds. “But companies are starting to see IT as a strategic enabler, not a cost centre. We're seeing it in the applications space, the infrastructure space and we're seeing a lot more uptake in the business process outsourcing arena where clients realise others can do the same thing with higher quality, higher predictability, lower risk and lower cost.”

The private sector is taking its business to Manilla, China, India. Government isn't going offshore, he says, because of the labour issue.

Productivity and efficiency are as much of a driver as cost is these days.

Says Butkow: “We're seeing it more and more in infrastructure space where customers are looking to drive value, not just finding an outsourcer to do the job, and do more for less, but rather to do more, more effectively, efficiently. In the infrastructure outsourcing space, we're seeing clients wanting a provider to come in and fundamentally transform the data centre, and transform the price point from X to Y, where Y is significantly less. We're looking at taking out 30% to 40% of the cost per user in our engagements. This means fundamentally transforming, virtualising servers, storage, processing power, workstations, and cloud is a key component of this transformation of clients' infrastructure.”

“Neither outsourcing nor cloud computing are new,” comments Spescom group executive: Business Solutions Development Pieter du Preez, “if you consider that companies started looking towards alternatives to mainframe computing approximately 10 years ago. Indeed, the two are becoming intertwined as the relevant underpinning technologies mature and become increasingly mainstream. For many, the question in the near future may not be 'how much should we let go?' but rather 'how much do we need to retain?'

“Debate around the pros and cons of outsourcing remains, however. Organisations need to identify the benefits of cloud computing to their business and whether it is aligned with their company strategy and corporate goals, and falls within the governance and risk frameworks they have defined. Key considerations include legislation (eg, FICA and RICA) and regulations pertaining to various sectors, and how outsourcing fits within the frameworks such as King III,” he states.

Butkow says cloud providers that jumped on the bandwagon in search of easy money now need to sort out security, risk and compliance issues. The alternative is to go out of business. Responsibility for data remains with the owner, which means organisations that outsource without considering the consequences, and ensuring adequate measures to protect data are in place, are likely to go out of business too, as the impact of data losses is felt.

In the near-term, however, all is looking up in the outsourcing space.

* Outsourcing 2010 - International Association of Outsourcing Professionals State of the Industry Survey conducted with Accenture. Data used for the report is based on three surveys of IAOP's more than 100 000 members and affiliates worldwide, conducted via e-mail in January and September 2009 and January 2010.