Monday, 28 May 2012 16:59

Outsourcing gaining ground as companies go for growth

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Australian companies have come through a tough market in the past two years due to global economic uncertainty, and one leading market analyst firm says that the top focus for business leaders now is on growth, to be achieved by agility and a renewed focus on automation, continual business process improvements and overall transformation of their IT functions.

According to IDC latest report, companies need to be able to respond quickly to the fast paced changes in the external environment and embrace the emerging new digital economy.  “On the other hand, customer centricity, customer retention and customer growth are factors that will continue to drive services organisations in the face of heated competition,” says Raj Mudaliar, senior market analyst, IT services research group at IDC Australia.

“Australian businesses have had quite a bumpy ride over the past two years, a time when they operated on the thresholds of extreme uncertainties driven by Europe's unfolding economic saga, the slowdown in the US and of course, the ripple effect this had on China, Australia's largest trading partner.  

According to IDC, its survey revealed that the top three business concerns for Australian companies in 2012-13 are finding new customers or customer segments, escalating costs of operation (or expansion) and expanding into new markets.

Corresponding to this "growth" agenda, IDC says the top ICT priorities identified by CIO's for 2012 were lower overall cost structure, improving or simplifying IT infrastructure, including consolidation, and building a more secure IT environment.  

Of the Australian organisations surveyed, 35.6 percent indicated that there would be an increase in the organisation’s total IT expenditure for IT services, including outsourcing, on a year-by-year basis for the full year this year. However, 43 percent of the expected a return on IT investment in less than a year and 23 percent between one to two years, while line of business leaders were also becoming more actively involved and influential to drive internal IT to adopt new technology.

Raj Mudaliar  says that the Australian IT outsourcing services market (ITO) was estimated to be $ 7.3 billion in 2011, constituting more than half of the total IT services market, and forecasted to grow to $ 9.5 billion by 2016 at a CAGR of 5.4 percent for the period 2012-2016.

“The key drivers for the infrastructure services outsourcing (ISO) market, the largest by revenue size, were predominantly long term cost savings, consolidation and simplification of IT infrastructure, and access to new technical skills/competencies,” Mudaliar  says.

According to IDC, the survey of Australian businesses revealed that there was also an increased prevalence of business-led conversations rather than the traditional “your mess for less” type of agreements.  The analyst firms says that, what it calls a “flurry of cloud-related activity” in 2011, has seen traditional hosting providers broaden their product lines with standalone cloud/IaaS offering portfolios and hybrid solutions triggering growth in the hosting infrastructure services, whilst market demand for migrating from legacy network environments to next generation platforms (e.g. IP/MPLS), vendor consolidation and overall complexity continued to drive growth for managed network services.

“Solutions for desktop virtualisation is maturing and moving beyond just managing PCs to addressing many different facets of end-user computing including mobile devices,” Mudaliar says.

"The move from capex to opex and greater expectations for return on IT investments will drive IT outsourcing engagements. However, though lowering costs is an important driver, customers are increasingly looking to outsourcing as a means of transforming their technology environments involving new technologies (e.g. virtualisation, SOA and mobility) and new service delivery models (e.g. private and public clouds).

"While the rumblings of change from a traditional to a cloud/cloud-based model of delivery have been around for some time, there appears to be a groundswell of events placing increasing pressure on traditional outsourcers to take a fresh look at their business models and reinvent themselves to be future ready.”

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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