IDC: Cost to drive outsourcing in 2007

Cost saving will be the main factor driving the $7Bn worth of outsourcing contracts renewals expected this year, according to IDC's 2006 Australian Outsourcing End-User Survey.

'We are seeing a change in customer behaviour.  Last year when we did the outsourcing survey, most mentioned that a strategic IT direction was the number one driver,' IDC outsourcing and BPO research manager, Aprajita Sharma, said.

IDC forecast banking, finance, and insurance verticals would represent about 75% of renewal contracts this year.  Sharma said key areas of opportunity for service providers were in network, desktop and applications management.  Even though tier one organisations, such as EDS, IBM and CSC, still dominated the outsourcing space, Sharma said their combined market share was dropping.  She attributed this to increased competition from smaller niche players and international firms.

'There are lots of other tier twos vying for outsourcing dollars, which is a result of how the market is shaping up,' she said.

The report also found stronger interest in offshore outsourcing, which Sharma said could lead to more cost-effective contracts and skills.

'Going offshore is not just about the low-cost labour but also accessing good skills, which are available in countries like India,' she said.  'It also gives customers the opportunity to play on an international level.'

Sharma said selective outsourcing was gaining more favour because it gave organisations the benefit of working with different vendors. Another trend emerging within outsourcing contracts was the increased focus on governance.

'Many of the contracts are becoming multi-supplier and organisations are looking at how to structure a better governance model,' she said. 'You can't have just one vendor that is really good at everything.'

In the SMB space, security and hosting services were areas outsourcers should put more focus on, Sharma said.  'Hosting is also more likely to pick up in the SMB space because it is more of a cost-effective shared services model,' she said.

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