Posts Tagged ‘“IT Outsourcing”’

How about IT outsourcing in Central and Eastern Europe?

November 30, 2010

5 experts interviewed, over 240 companies operating in 16 CEE countries surveyed, and much much more. These are the headlines of the comprehensive “Central and Eastern IT Outsourcing Review 2010” which has been currently published.

This 164-page-report examines the role of ITO sector in Central and Eastern Europe and delivers answers regarding recession and its impact on ITO sector, market volume, development in number of companies and their characteristics, number of IT professionals and hourly rates. Except of that a brief characteristics of countries of the region has been delivered and contact data of companies and other organisations operating in the region have been presented.

Below a short excerpt from the interviews with outsourcing experts: Phil Fersht, Boris Kontsevoi, Magdalena Szarafin, Christoph Prieler and Franco Dal Molin.

Question 1. What are the main development trends on IT outsourcing services market and what will be the main outsourcing drivers for the years to come?

Phil Fersht: IT outsourcing is reaching a pivotal juncture in its maturity. Many of the large
enterprises today have now moved much of the “low hanging fruit” application development and maintenance work to service providers and are now need looking at new ways of finding further savings beyond utilizing low-cost labor services. They are still driven by cost and efficiency, but also by innovation – i.e. unique and creative methods to find new levels of productivity and topline growth.

Question 2. Has the recession and the following cost-pressures changed the companies’ attitude to outsourcing (IT outsourcing specifically)?

Franco Dal Molin: Yes, it has. Many companies are now seriously evaluating outsourcing for the first time, or at least they do consider the possibility with a genuine interest and open
mindset, whereas in the past we encountered more skepticism, widespread black-and-white
thinking and cynicism.
Obviously most companies are looking at outsourcing primarily as a means for saving costs. In a number of West European economies there is – despite the crisis – still a significant shortage of skilled IT specialists. Finding developers and hiring them fast enough becomes often more crucial than just lowering costs. Finally, in times of uncertainty and volatility, outsourcing is looked at as an ideal way to become more flexible and/or scalable.

Question 3. View of the CEE region as a cluster of IT outsourcing services providers. Advantages, disadvantages, trends, image, specifics.

Magdalena Szarafin: One friend of mine, who comes from Canada, visited Poland a few years ago. Then he said to me: you know what? I am very impressed by what I saw. That is a very modern country. I visited some companies: everywhere young, dynamic, high-motivated people speaking foreign languages.
In my opinion, that statement describes the CEE region very well. Another maxim which points out the situation very well is: “Outsourcing is people’s business” – the geographical, cultural and language proximity are of importance for buyers. Customers from Western Europe are likely to make business with partners from Central and Eastern Europe as their locations are available within 2-3 hours their business partners speak their languages. They are high-qualified and the prices are still lower than those in Western Europe.
And another maxim yet: “We are the second (third, fourth) – we try harder” implies that a customer doing business with partners from CEE countries can expect to be delivered with highquality services.
One of the challenges is cost explosion: wages and salaries in the CEE countries are rising quicker than those in Western Europe. Also lack of professionals which can already now be observed in many industries is the next challenge for the upcoming years.

Question 4. Europe outran US as the biggest outsourcing spender last year (http://bit.ly/5PQcFA), will this trend remain?

Christoph Prieler: The US economy has experienced the highest impact of the economic
downturn around the globe. Consequently US companies were securing their short term survival rather than closing strategic outsourcing relationships in 2009 and many outsourcing deals in the pipeline were therefore put on hold. Since the economy has picked up, we experience outsourcing spent in the US on the rise , overtaking European revenues again. The interesting trend within the European outsourcing spent consists of the fact, that continental European countries such as France and Germany have for several quarters now overtaken the UK in spending amounts.

Question 5. How growth of new technology trends (Cloud computing, virtualization, etc) impacts IT outsourcing and business models?

Boris Kontsevoi: I don’t see any impact from technology innovations on outsourcing
models, at all. Cloud computing, virtualization, etc. is exactly like a new version of .NET platform, or operating system, or any other technological advance. These are new tools, that will be utilized of course, but won’t directly impact the business models, except, perhaps, for IT infrastructure companies. It’s more interesting to discuss a new trend of cloudsourcing, (or
crowdsourcing, e.g. Wikipedia success, Tripadvisor and tons of other product review websites, Google maps, blogging, etc.), when the power of “a public cloud”, a crowd is utilized to create a new value. Of course, such public clouds will need cloud computing technologies to run (and some are already available from Microsoft, Google, Amazon, etc. and we should see a lot of new start ups yet) but there is not yet a good business case. I can understand the drive behind the people who write a Wikipedia article or a product review but doing anything like this for a commercial organization will immediately require some incentive and compensation. We’re yet to see in which form the new crowdsourcing models will appear.
One more interesting trend is a new reincarnation of rural sourcing. Offshoring still is more cost effective but with all populist political agendas regarding job outsourcing and, in some situations, availability of a good business case to use native speaking resources and culture, rural sourcing will increasingly compete with offshoring.

The full report can be downloaded from the following location:

http://ceeoa.org/CEE_ITO_Review_2010.zip

Magdalena Szarafin
http://www.szarafin.info

Advertisements

Magdalena Szarafin participates in “Central and Eastern Europe IT Outsourcing Review 2010”

November 30, 2010

A unique, valuable, 164-page-report “Central and Eastern Europe IT Outsourcing Review 2010” has been just released. Except of a comprehensive country anaylsis, presentation of reasearch results and the list of IT companies operating in the CEE region, expert interviews (Phil Fersht, Boris Kontsevoi, Magdalena Szarafin, Christoph Prieler and Franco Dal Molin) have been published.

Here is an excerpt from the interview with Magdalena Szarafin:

Question 1. What are the main development trends on IT outsourcing services market and what will be the main outsourcing drivers for the years to come?

Let’s perceive the IT market from the perspective of the trends affecting its main players (vendors and buyers). The following trends can be observed on vendors’ side:
· Searching for new products and solutions to increase sales revenues,
· All big suppliers (and many smaller ones as well) deal with new service models (e.g. cloud computing, managed services, SaaS),
· Integration of IT and telecommunications solutions,
· Using service models based on economies of scale: having a large number of customers, low sales revenue per customer and low costs of sales per customer.
And the trends observed on buyers’ end can be summarized as follows:
· Cost pressure and limited budgets for IT investments,
· Security concerns,
· Need for flexible solutions,
· Multi-site collaboration, need for product and services supporting home office and mobility solutions.

Question 2. Has the recession and the following cost-pressures changed the companies’ attitude to outsourcing (IT outsourcing specifically)?

For many vendors the crisis time has brought the opportunity to increase revenues as many companies think about outsourcing their operations to third parties in difficult times. Also those of them who were skeptical about outsourcing until now. The decision whether to outsource (or not) tends also to be met quicker and easier under the pressure of crisis.
Companies try to focus on their core competencies and to cut costs. Therefore IT outsourcing has been as popular in the crisis time – trying to improve their cost structure, companies tend to implement projects which help them to improve performance and have short time of amortization. Also outsourcing infrastructure to third party enables the buyer to improve shortterm liquidity.
What is going to come after the crisis? Vendors can be optimistic, after the phase of cost-driven, quantitative outsourcing the phase of qualitative outsourcing is likely to come. Companies searching for innovations, quality improvement and use of external know-how will try to outsource their operations, expecting vendors to help them to achieve these objectives.

Question 3. View of the CEE region as a cluster of IT outsourcing
services providers. Advantages, disadvantages, trends, image, specifics.

One friend of mine, who comes from Canada, visited Poland a few years ago. Then he said to me: you know what? I am very impressed by what I saw. That is a very modern country. I visited some companies: everywhere young, dynamic, high-motivated people speaking foreign languages.
In my opinion, that statement describes the CEE region very well. Another maxim which points out the situation very well is: “Outsourcing is people’s business” – the geographical, cultural and
language proximity are of importance for buyers. Customers from Western Europe are likely to make business with partners from Central and Eastern Europe as their locations are available within 2-3 hours their business partners speak their languages. They are high-qualified and the prices are still lower than those in Western Europe.
And another maxim yet: “We are the second (third, fourth) – we try harder” implies that a customer doing business with partners from CEE countries can expect to be delivered with highquality services.
One of the challenges is cost explosion: wages and salaries in the CEE countries are rising quicker than those in Western Europe. Also lack of professionals which can already now be observed in many industries is the next challenge for the upcoming years.

Question 4. Europe outran US as the biggest outsourcing spender last year (http://bit.ly/5PQcFA), will this trend remain?

Yes, I would definitely say yes. The improvement in macroeconomic
conditions will actively contribute to this positive trend. According to Gartner, IT spending in Europe increase in 2010 by 5.2 percent comparing with the previous year while the average increase of IT spending in the US amounts to “just” 2.5 percent in 2010 comparing to 2009. And one thing cannot be forgotten: there is still a gap regarding IT and telecommunications between Europe and the US so that European companies have no solution than to spend more than the US to make up for the distance missing.

Question 5. How growth of new technology trends (Cloud computing, virtualization, etc) impacts IT outsourcing and business models?

It is expected that IT outsourcing will get much more heterogeneous than ever before. Security concerns buyers have tend to motivate vendors to offer new forms of business relations. Traditional outsourcing with personnel, assets and responsibility transfer is very likely to be amended by outtasking and utility sourcing where no personnel and assets transfer takes place and the buyer is responsible for processes.

The full report can be downloaded from the following location:

http://ceeoa.org/CEE_ITO_Review_2010.zip

Magdalena Szarafin
http://www.szarafin.info

Outsourcing: What do the clients expect?

July 25, 2009

Flexibility? Cost reduction? Innovations? Risk avoidance? Quality improvements? Any of them? Or maybe all of them? What do companies expect making the decision about outsourcing operations?

A few days ago I visited an interesting conference organized by Computerwoche and held in Offenbach, Germany. Among others, the findings of a study dealing with the expectations and motivation for IT outsourcing and different customer profiles have been presented. This study has been undertaken by Prof. Helmut Krcmar and Dr. Stefanie Leimeister of the Technical University of Munich.

The key finding of the study is as follows: IT outsourcing market consists of different players. The combination of: cost, innovation, technology and business makes it possible to make the market segmentation and to divide the clients into 4 groups: business-efficiency clients, cost-conscious small shoppers, strategists & innovation seekers and IT excellence & reliability clients.

The first group, business-efficiency clients, is service-oriented and expects flexibility and quality improvement. These are bigger companies representing banking, insurance and finance industry, their annual revenues amount to over EUR 10bn and they employ 5000 and more staff.

The cost-conscious small shoppers are focused on cost reduction. They represent electrical engineering, consumer goods industry and IT services. These are middle-sized and big companies, employing 2000-5000 staff and having EUR 1-5bn revenues.

The third group, strategists & innovation seekers, consists of companies from the automobile industry, engineering, and public sector. They are small and middle-sized companies with revenues of EUR 250-500m and under 2000 employees. They expect IT and service innovations, joint product and service development, knowledge transfer from the provider, and access to qualified personnel.

And finally, the group consisting of IT excellence & reliability clients has different motives: IT focus (better and modern IT, cutting edge technology) and/or business focus (quality improvements, qualified personnel, risk avoidance). They represent small companies from manufacturing industry, which employ under 500 staff and generate EUR 50-500m revenues.

The study was conducted among German companies, however, future studies in other countries are planned.

Magdalena Szarafin
http://www.szarafin.info
_______________________________________________________
Magdalena Szarafin has immense knowledge of the outsourcing sector and is one of the authorities in shared services and outsourcing industry analysis. Her research interests include insourcing and outsourcing in connection with the value chain. She is an author of many publications dealing with outsourcing, knowledge management and total quality management (TQM).
Magdalena lives in Frankfurt, Germany and she works as an International Management Accountant in a big multinational group, dealing with preparation of financial statements under IAS/IFRS and local GAAP. In her leisure time she prepares a PhD dissertation focused on shared service centers.
Contact her to leverage her knowledge and in-depth BPO and shared service industry penetration experience.