Outsourcing Is Poised for Growth Despite Economic Recession

Outsourcing and offshoring providers may soon get a boost. Businesses believe that they can take advantage of a more skilled workforce offered by the managed services market, while cutting costs for IT infrastructure, says Forrester Research.

By Henry Dewing
Mon, December 15, 2008

CIO — Companies are showing renewed interested in managed services to help manage and mitigate their risks associated with technology decisions—particularly in the current economic environment. Forrester sees some macro-economic factors, including rapid technology evolutions, a coming investment wave in information technology, and market constraints on capital, increasing the attractiveness of managed services over the next 24 to 30 months. Managed services providers will have to hone their execution and sales skills to gain share in this burgeoning market. Why?

  • Faster technology change. Users and buyers are facing a blizzard of new technologies and capabilities. Companies faced with discrete decisions to staff their IT operations group, invest in equipment and facilities, and manage these rapidly evolving capabilities must now consider the shortened useful life of the knowledge and equipment in which they invest. Managed services help provide safeguards against these rapid changes. Cisco Systems touted the ease with which its TelePresence solution, first generally available in Q4 2006, could be installed and maintained on internal corporate networks. A year later, large service providers like AT&T and British Telecom (BT), as well as managed services provider Tata Communications, have met market demand by offering a fully managed Cisco TelePresence solution to help reduce the complexity and cost of the solution.
  • We are sitting at the cusp of a tech investment cycle—despite the near-term economic crisis. Sure, economic uncertainty abounds, but history has proven that the IT industry generally operates in 10-year alternating cycles of innovation and growth followed by cycles of refinement and digestion. Forrester sees late 2009 to 2017 as an innovation and growth cycle, where businesses will invest in new and innovative technologies. This increased investment and innovation will prompt buyers to consider managed options—giving them more nimbleness and breadth to try a variety of solutions.
  • A scary macro-economic client. As the IT industry enters an innovation and growth cycle, the greater worldwide economy is entering a period of significant capital constraints and low growth. Given limited prospects for growth and the high cost of capital, Forrester believes that many businesses will turn to managed services to limit capital investments while increasing the flexibility of IT infrastructure. When using managed services, many Forrester clients—enterprises as well as small and medium-size businesses (SMBs), believe that they can take advantage of a more skilled workforce, while reducing capital expenditures for IT infrastructure.

Business Needs Will Drive the Shift to More Managed Services

Managed services allow business to concentrate on business decisions—not IT management. Increased revenue, reduced cost, and improved efficiency drive interest in managed services, and we believe that this will fuel market growth of managed services of all kinds over the next 24 to 30 months. 67 percent of 911 IT decision makers in Europe and North America that Forrester surveyed in Q1 2008 buy managed telecommunication services for expected cost savings, while 51 percent cite simplified operational management as the primary reason and 47 percent buy managed services for the improved quality and reliability.

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