11 Outsourcing Trends to Watch in 2011

Smaller contracts and hard lines on prices. Cloud-related commotion and back-door deals. Increased offshoring and decreased customer satisfaction. Happy New Year, outsourcers!

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4. Back-Door Deals Put CIOs at Risk

Many of the discussions and decisions about cloud-based offerings will be handled by business unit or function owners rather than IT, says Kamran Ozair, executive vice president and CTO at offshore outsourcer MindTree. That could pose problems down the road. "CIOs must get ahead of business users reasonable zeal for the power of focused SaaS applications that could back the enterprise into stealth architecture decisions that could be expensive to undo," says Trowbridge. "Business stakeholders want cloud, and they know smart CIOs can mitigate its risks," adds Fersht. "However, IT professionals must tool-up to deliver cloud to their business stakeholders, otherwise they risk a gap growing between business demand and IT supply."

5. The End of Customization

"Clients will be increasingly open to changing their internal processes and accepting standard 'vanilla' services in 2011," predicts Bob Mathers, principal consultant for Compass Management Consulting. "Service providers will put renewed emphasis on internal initiatives to standardize their own offerings to leverage economies of scale and stabilize profit margins." It's the stuff of benchmarking dreams, but economic conditions may turn it into a reality. Stan Lepeak, managing director of global research for outsourcing consultancy EquaTerra, also predicts more process, technology, and location standardization including platform-based solutions.

6. Prices Get Firm

Remember when you could persuade (read: bully) your provider into lower pricing? Days of auld lang syne, my friends. "Outsourcing providers have filled up their prior excess capacity and will be driving to secure higher price points," says David Rutchik, partner with outsourcing consultancy Pace Harmon. "Pounding on the table for price reduction is unlikely to be effective this year."

Customers seeking savings will have to bone up on delivery models, deal structures, and value drivers instead. And vendors will have to woo clients with performance rather than a low bid, says Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group. "As a result, we will see select players grow disproportionately, taking clients away from others."

Cloud-computing prices could also become less—well, cloudy. Pricing models will mature, predicts Dave Brown, managing director of EquaTerra's IT advisory, and buyers will better understand the specific offerings.

7. M&A: East Meets West

A merger between a major Indian IT service provider and a U.S.-based outsourcer? It could happen next year, say some industry watchers, and an Indian company may be on the buying end. Western providers have adopted the process and cost initiatives first embraced by their Eastern counterparts. Indian providers are skilling up to try to win more consulting and integration work. "The cultures are moving closer together," says Fersht of HfS Research. "2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents."

"It has long been talked about," says Joseph King, Chief Marketing Officer at MindTree. "There is no longer [cost] that CIOs can squeeze from their India partners. So for differentiation, India providers will be forced to move up the value chain."

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