Midsize IT Outsourcing Providers Offer Hidden Value

There's a growing shift from tier 1 offshore outsourcing providers to midsize IT services players. Scale and price are no longer the sole interest of outsourcing customers. They are seeking agility, flexibility, vertical alignment, responsiveness and trust -- all of which they are more likely to find in a smaller, more focused provider.

By Stephanie Overby
Fri, September 20, 2013

CIO — For years, there were the so-called tier 1 offshore outsourcing providers -- the Tatas and Cognizants and Wipros of the world -- and then there was everyone else. But market dynamics are making midsize IT services players more attractive to buyers today.

Outsourcing customers are no longer interested solely in scale or price, says Hansa Iyengar, sourcing and vendor management analyst with Forrester Research. They're seeking agility, flexibility, vertical alignment, responsiveness and trust. And they may be more likely to find that in a smaller, more focused provider.

outsourcing, offshoring
"As deals get smaller, scale as a major differentiator is losing sheen. This gives smaller tier 2 players scope to compete for deals where they had thus far never been invited to participate in," says Iyengar. Customers are also looking for more bang for their buck. "The cost arbitrage argument played in favor of larger vendors based on the economies of scale principle," Iyengar says. "But the tables are turning now, and skills are being valued more than cost."

Large scale vendors still capture the majority of offshore IT deals. As some customer consolidate their sourcing portfolios, they will continue to seek the breadth of end-to-end service that only the big providers can deliver. But midsize players can be a perfect fit for the small to midsize customers overlooked by larger vendors and for smaller, more intimate deals with Fortune 1000 companies, says Iyengar.

Midsize IT Outsourcing Providers Can Offer More Specialization

Specialization is a big benefit of the midsize option. These vendors tend to have deep expertise in domains such as air traffic management and passenger analytics for airlines, core banking and treasury solutions for financial services, or port operations automation and freight management for logistics.

That intimate knowledge of the problems in a particular industry and understanding of how to solve them often gets overlooked -- and the providers themselves may be to blame "In their eagerness to paint themselves in the image of a larger vendor, many midsized vendors fail to articulate the very niche skills and value proposition that they can bring to the table," says Iyengar. "So their hidden' abilities are underestimated."

Midsize providers, eager to grow business, also focus more on customer satisfaction than their tier 1 brethren. They're willing to adapt to clients' pricing, delivery location, and staffing requirements. About 95 percent of their engagements are less than $5 million in value, according to Forrester, so they must be flexible to win, retain, and increase share-of-wallet from customers "A major factor in the midsized vendor's favor is their willingness to bend to the clients needs," says Iyengar.

Continue Reading

Our Commenting Policies