There was a great article posted on CIO.com in March 2008, titled, “Outsourcing: The Pros and Cons of Offshore Remote Infrastructure Management.”  The article discussed many of the recent trends related to remote infrastructure management, including the increase in competition caused by offshore vendors.

Infrastructure is generally managed remotely, even if the data center is located nearby.  According to Bill Piatt, CIO of the International Finance Corporation, “remote infrastructure management is something that virtually every organization does every single day.”  He goes on to say that people think there is a difference if that work is done offshore.   However, recent trends show that remote infrastructure management is being included as an additional service in global sourcing.  Numerous global outsourcing proposals now contain some form of offshore infrastructure delivery of services.

Many of the large global sourcing providers believe that infrastructure management will be the next main revenue source.  IT vendors are increasing their delivery capabilities to attract more business from outsourcing companies.  From 2003 to 2005, the number of vendors who have the ability to handle infrastructure tasks tripled to 15,000. 

The utilization of global sourcing providers for services involving infrastructure management has become more mainstream.  The market for remote infrastructure management is estimated to be somewhere between $80 billion to $120 billion.  Experts feel that global sourcing providers will gain additional market share and will continue to grow by 20 percent each year.

The article on CIO.com listed the percentages of infrastructure support functions that could be sent to a global sourcing provider.  These functions included:

• Network Services 80%
• Internal Help Desk 75%
• Servers 70%
• Maintenance 60%
• Administration 35%
• Mainframe 30%
• End-user Devices 15%

A report published last February by India’s National Association of Software and Services Companies (Nasscom) asserts that up to 75 percent of all infrastructure management roles could be outsourced globally, which would create a $26 billion to $28 billion revenue potential by 2013.   The report stated that Indian companies could capture approximately 50 percent of this revenue. 

There currently is a lot of competition among infrastructure providers.  Global sourcing vendors have been purchasing infrastructure service providers to grow that segment of their businesses.  The recent changes will give outsourcing companies additional options, but can also create more confusion on making the right decision for remote infrastructure management.

There are benefits to sending infrastructure management to a global sourcing provider, but it may not be a good fit for every organization.  A&E Consulting can help you weigh the benefits of working with a global sourcing partner and will oversee your first outsourced project.

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There is a lot of speculation as to what the coming months will bring for the global sourcing industry.  According to Gartner, a research analyst firm, spending on offshore IT services is expected to grow 40 percent in the United States and 60 percent in Europe in 2008.  The big question is what new trends will occur among global sourcing?

More companies will begin to send work to countries other than India. For the past several years, India has been the leading provider of global sourcing.  While this country is expected to remain in the lead, there are more challengers in the industry.  The IT market in India has been impacted by wage inflation, shrinking pool of talented professionals and infrastructure issues.  It is likely that global sourcing providers in Latin America, China, South Africa and Eastern Europe will attract more IT business.

Global sourcing providers will consolidate. Competition in the outsourcing market has become fierce. The leading IT service providers are expected to consolidate by purchasing smaller competitors in the industry.  There is speculation that the number of mergers and acquisitions will continue to go up and there will consequently be a smaller amount of suppliers for buyers to choose from.

Remote infrastructure management (RIM) outsourcing will grow. RIM refers to managing servers, applications, networks and databases.  This market is estimated to grow 60 to 70 percent in 2008.  RIM outsourcing is considered to be an asset-light deal and provides a lower cost infrastructure for the outsourcing company.  Traditional infrastructure outsourcing will start to decline as RIM outsourcing grows.

There will be a greater demand for high quality work and more services. The focus has been on cost reduction, but more outsourcing companies will be putting an emphasis on high quality work and additional services.  Outsourcing companies will be looking for better talent, expertise and flexibility from the global sourcing providers.  There will be a bigger demand for higher-value work including process improvement and application portfolio rationalization.

Green outsourcing will become more popular. Environmental concerns are growing and corporations are requiring that suppliers adopt green policies.  The Brown Wilson Group conducted an independent study of 20,000 outsourcing users. According to the survey results, 43 percent of outsourcing companies said that green factors would be important when choosing a supplier for the first time.  More than 94 percent of executives that were surveyed stated that they plan to add green clauses in their renegotiation processes.  This spotlight on environmental concerns could force global sourcing providers to develop eco-friendly processes and policies.

A&E Consulting will make global sourcing work for you.  We will assist you in choosing the right global sourcing partner and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Outsourcing deals are beginning to shrink in size.  No longer will mega IT contracts dominate the industry; instead there will be a focus on outsourcing to more than one vendor, which is also known as multi-sourcing.  The reason for this change in outsourcing had to do with the immense risks associated with using only one outsource service provider.  Some of the risks of using only one supplier include technology and knowledge dependency, unrealistic expectations, vendor failure to perform and lengthy contracts.

When only one supplier is used for IT services, the buyer and provider become so intertwined that it makes it very difficult to sever the relationship if needed.  There is some business knowledge that will reside within the developer of the application and the buyer can be at an extreme disadvantage if a suppler holds the majority of this information. Multi-sourcing makes outsourcing companies less dependent on one supplier for all their IT or business needs.

For companies wanting to outsource a variety of IT functions, the vendor may fail to meet expectations.  It is unrealistic to assume that one supplier has the knowledge and expertise to handle a wide range of tasks, such as networking, business processes and application development. Executives have started to outsource individual projects, services and functions to multiple providers.  By multi-sourcing, buyers have the ability to utilize the resources and expertise offered by each supplier.  The outsourcing company is also able to look for a provider with the best capabilities for performing a specific process or function.

In some incidences, the vendor may have failed to perform as agreed, despite all best efforts.  If the outsourcing company did not have a contingency plan in place, this failure to perform can have a negative impact on the organization.  Multi-sourcing allows the buyer to remove the failing vendor without significantly disrupting business.

Outsourcing contracts are typically for five to fifteen years.  For a buyer who is outsourcing for the first time, this long term contract can be intimidating and risky.  Basically, the outsourcing company is putting all of the faith on one vendor’s capabilities and locking into a lengthy agreement.  Many outsourcing companies are now signing short term contracts with various suppliers.

Multi-sourcing is a way to minimize the risks of outsourcing IT services.  A&E Consulting will help you evaluate the advantages of multi-sourcing versus outsourcing to one supplier.  We will assist you in choosing the right outsource service provider and establishing the business relationship.  In addition, we will manage the first outsourced project.

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