The amount of work that CIOs are outsourcing will continue to increase. These tech services buyers are looking for multiple partners and some of them are driven by more than just saving money. These are a few of the key themes uncovered by the latest Harvey Nash/PA Consulting CIO survey, and there are some positive implications for nearshore IT providers.
A few highlights:
• 28% of global CIOs will spend up to a quarter of their IT budget this year on outsourced activity (5% increase)
• 45% of global CIOs will invest in outsourcing in the next 12 months (9% increase)
• 43% will maintain spending at current levels
• 47% of U.S. CIOs allocate more than one-quarter of their IT budget to outsourcing projects
• 41% of U.S. CIOs say they expect to depend more on outsourcing in 2011, a bump-up of 3%
• 46% of U.S. respondents plan to allocate more budget to offshore activity (only 35% in 2010)
• Most popular outsourced activity: application development
Money is still the biggest reason most companies outsource, no mistake about it. It was listed as the top priority by 67% of CIOs surveyed (but it was 74% in 2010). Flexible labor is also seen as an advantage of outsourcing IT, especially to smaller organizations. Innovation is expected to play a bigger role in the pursuit of profit, and the person responsible for that is often the CIO.
“For many global CIOs, innovation is now being put to use in the pursuit of growth in various ways, such as shortening the time to market for products into new markets and developing new consumer channels,” the Nash report says. Clearly this is an opportunity for Nearshore IT providers to fill in the gaps for clients who want to innovate but don’t have the staff for it. CIOs are increasingly partnering with a wide range of suppliers, with 39 percent expecting to increase their dependence on multisourcing in the next 12 months.
The survey paints a great picture of the current CIO/IT landscape — a picture that anyone who wants to sell services to CIOs should study. In one of his typical information-and-observation-packed presentations, Chris Nuttall, outsourcing expert and member of PA Consulting‘s Management Group, walked us through some of the research highlights. His condensed comments follow:
“There’s a lot more multisourcing going on, more businesses working with multiple providers. Thirty-nine percent of global CIOs are increasing their use of multisourcing this year. This is good for Latin American providers because they can differentiate their services. Global CIOs are still using India and Asia as a major hub, but they can’t always find the talent or the specific skills they need there, so they turn to other sources. In a multisourcing environment, they can take advantage of the benefits of Latin America. The multisourcing trend is very important for the Americas region. Obviously they cannot compete on costs for all services, but they can compete in terms of quality or certain types of advanced skills. CIOs are looking for help with platforms like the cloud and mobile technology.”
Providers are going to have to upgrade their approach to relationship management and governance.
“One reason more companies are multisourcing, partnering with a wide range of suppliers, is to obtain more innovation. They are outsourcing more around innovative functions rather than utility functions — which is another idea that we’ve seen emerge this year: the innovation CIO as opposed to the utility CIO. This is an opportunity for Latin American IT companies because they can compete in terms of ideas and innovations. The time factor also plays into this because it’s easier to interact with a customer who’s nearby. You work with them collaboratively to flesh out the ideas. It’s obviously easier to collaborate when in the same time zone.”
“Customer service is an area where CIOs need to build more skills. In terms of skills that are in demand, one of the top growth areas is managing strategic relationships with providers. The need for customer service skills increased by one of the greatest amounts since last year. Latin America has strengths in the customer-service business. Cultural awareness, proximity to the North American customer, the fact that American culture and Latin America are aligned in many ways, these are all factors that can help deliver great customer service. This helps explain why help-desk functions are often outsourced to places like Costa Rica. You have a highly skilled workforce, a focus around people, an ability to communicate with the customer in a positive way. It’s the whole culture, much broader than just language. You can get good customer-service providers in India certainly, but it’s more challenging to be sure it’s really high quality.”
“In-depth IT knowledge is another one of the skills required more today. Providers can increase their value by demonstrating to the CIO that they have the specialized IT skills the customer needs. I think service providers are going to have to get better at sharing information across their customer base…. There’s going to be more sharing, and a more open approach to innovation. It’s no longer a question of one service provider helping a customer solve a problem. It’s going to be maybe three or four providers. More partnering, more sophisticated partnerships. Providers are going to have to upgrade their approach to relationship management and governance. This change also carries some risk… You might not get as big a piece of the pie as you used to. The days of the big outsourcing deal are going away. As IT buyers get more sophisticated about outsourcing, they’re carving up the pie. For providers, the client will be hiring you only in the area where you are truly expert. There will be more niche players, more specialization among IT providers.”