In a trend that’s affecting the call center jobs market as well as contact center and business process outsourcing (BPO) firms, Gartner (News - Alert) reported that the global outsourcing market continues to increase at a steady pace, with a forecast growth rate of 8.1 percent in 2008.

 

Kurt Potter, research director at Gartner, explained in the report that, although user organizations often have fundamentally sound procurement organizations to initiate outsourcing contracts, for many immature IT sourcing strategies and governance structures are still the norm. It’s also common for such strategies to be lacking altogether or be misaligned with enterprise objectives.

 

Potter said that these organizations do not have the basic building blocks for successful vendor management and outsourcing success. Therefore the expected cost savings and other benefits associated with outsourcing are difficult to obtain.

 

In extreme cases, the lack of needed trust and control to optimize the outsourcing relationship results in deal failure. Potter added that for the time period of the report (2007-2008) organizations focused less on outsourcing to achieve cost savings than in previous years; instead, they looked at outsourcing as a way to utilize providers' global delivery models, thereby accessing the right skills at a reasonable price, wherever they are.

 

Gartner says that although outsourcing continues to grow, publicly-reported IT outsourcing (ITO) and BPO contract values decreased overall by 50 percent during 2007. The research firm thinks this apparent discontinuity is partly due to less publicity of deals. This happened because the outsourcing market has matured and such deals are now more commonplace. Although companies are simply outsourcing more, many decide to use a multi-provider strategy. Also, more deals are smaller in size and as such were not significant enough to report.

 

Potter pointed out that, for 2008, the research firm expects to see some early adopters of multi-sourcing will consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers. He observed that some organizations will consider prime-contractor outsourcing models or the appointment of new vendor management roles in their retained organizations. This will occur because of multisourcing complexities often associated with handoff points between competing providers and unclarified vendor management processes.

 

Today, buyers prefer moving work to lower-cost, offshore delivery centers. Cost remains a major driver for global delivery models (GDMs). However, more-mature users are searching ways to better support their business needs. In 2007, Indian providers gained traction in Europe, but faced stiff competition from more-established vendors with GDMs.

 

Gartner said Indian providers are growing at a rate of approximately 40 percent annually in the U.S. and 60 percent annually in Europe. The gap is closing even though spending on offshore services is three times higher in North America than in Western Europe.

 

Ian Marriott, research vice president at Gartner, explained that other countries will continue to emerge as challenges to India for several reasons. First, strong demand is putting a strain on the available Indian labor force, with staff attrition and cost increases remaining high. Second, global companies are accelerating their demands for a presence in countries other than India. Finally, providers are seeking to expand their geographic footprint of delivery centers accordingly.

 

Marriott added that more sophisticated buyers are seeking a multi-country strategy to minimize risk and align nearshore and offshore delivery centers with their primary time zones. India's offshore revenue will continue to grow, but the nation's share of total offshore spending will decline slightly in 2008.

 

According to Gartner, the outsourcing market has reached a tipping point with regard to utility delivery models. The change and innovation will take hold and accelerate in this area during 2008 and beyond. A large number of providers are developing utility-based offerings across infrastructure, application and business process domains.

 

The research firm further explained that the trend toward software-as-a-service (SaaS) is gaining significant traction. Major software vendors, such as Microsoft and SAP (News - Alert), and large Internet players, such as Google and Amazon, have made announcements about new SaaS offerings and mass-customized software platforms. Gartner emphasized that user organizations need to realize that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies.