New York & Moscow, January 12, 2009 — Luxoft, a global provider of high-end application and product development services, serving such global industry leaders as Boeing, Dell, Deutsche Bank, IBM, UBS and others, today issued its annual predictions for the IT outsourcing industry in 2009.
These trends and predictions cover a range of technical, business and relationship pulse points.
Here are the top areas to watch in 2009:
“Show me the money” versus “strategic transformational value” - economic downturn will reshape the approach to outsourcing projects
Considering all customers will be under the pressure to re-evaluate IT costs in 2009, cost cutting or predictability of costs will be the main focus for corporate buyers.
“Innovative” and “transformational” types of outsourcing projects will slow down dramatically, unless a provider can demonstrate to the customers that their returns will exceed their investment. A freeze on all new initiatives without a clear business case can be expected. Vendors with an effective distributed delivery can capitalize on this trend using cost effective locations such as Vietnam.
While the demand by outsourcing veterans is expected to stagnate, many newcomers will appear
Economic pressure will bring many new customers to the outsourcing arena in 2009. This trend will be especially visible in Europe – in particular, for industries with long production and go-to-market cycles (e.g. automotive industry). Outsourcing provider's ability to deliver short-term ROI will become the main factor in vendor selection process. This ability will lie in vendor’s deep vertical expertise and will be further enhanced by the effective engagement model.
General movement to Managed Delivery model will continue, despite the downturn
IT outsourcing industry in 2009 will continue moving towards managed delivery (managed services) model implementation. Feeling the economic pressure, end users will be looking for vendors that can manage full development cycle, which brings such key advantages as fixed project costs, predictability and overall responsibility for software delivery. This comprehensive approach will be especially relevant for high-end IT outsourcing industry segment, where customer can optimize development costs and secure return on investment through managed delivery model.
On-site outsourcing staff presence will be a sensitive issue in the coming year
As a result of IT budgets cuts and efforts to bring down the costs, outsourcing companies will be decreasing the presence of on-site outsourcing staff - the most expensive IT resource.
Considering that some worldwide outsourcing market leaders today have up to 15-20% of outsourcing staff working onsite, the pressure to move offshore can result in over five percent reduction of onsite exposure, bringing it down to 10%.
As a result of shortening of onsite outsourcing staff, managed delivery expertise will become a king. Customers will be looking for vendors that are real managed delivery experts and that can deliver offshore without compromising quality and project management.
Russia and Ukraine: the same top engineering talent for the lower price
Economic downturn will improve labor markets in Russia and Ukraine (as well as in other Eastern European countries). Economic pressure in 2009 will result in a larger quantity of skilled IT personnel.
According to the research, performed by members of Russian Association of Personnel Search Consultants (APSC) in November 2008:
• 31% of IT companies made staff reduction, 31% said it will take place till the 2008 end, 8% said the reduction will be done at the beginning of 2009, and 30% are planning the staff reduction at first quarter of 2009;
• 27% of IT companies performed wage cuts and other compensation reductions, 7% were going to do by the end of 2008, and 47% were going to do it at the beginning of 2009.
Large number of skilled IT personnel with industry specific knowledge will appear on the job market as a result of IT budgets cuts in financial, retail, travel, automotive and other industries. This will provide IT outsourcing vendors with a unique opportunity to take on board not only technology experts, but also IT specialists with deep industry domain knowledge.
As a result, in 2009 local labor markets will go from being “personnel market” to “employer market”. This will stop wage inflation seen in the last two years, reduce local IT personnel and developers costs, bring in additional industry expertise, increasing the competitiveness of IT outsourcing vendors.
Outsourcing for Financial Services: struggling with crisis, with some new opportunities on the horizon?
Year 2009 will be tough for Finance industry outsourcing projects due to dramatic budgets shrinking. However, this situation will bring new opportunities to outsourcing vendors holding deep industry expertise. In particular:
• Investment banking segment will undergo clear business restructuring (traditional business processes will not work any longer), leading to respective IT systems changes.
• Strong growth of legal and compliance factors in corporate finance will bring big opportunities for IT, including outsourcing vendors
• New segment of potential outsourcing services buyers that have never outsourced before will become more open to outsourcing in 2009. For example, this can be “boutique type” IT companies with high capitalization providing trading platforms or trading/algorithmic technologies.
• CIOs of large financial organizations will put more pressure on consolidation of IT systems and IT providers to increase and optimize efficiencies, leading to services consolidation to one vendor.
Some of the promising areas for outsourcing in 2009 are e-commerce, wireless and mobile technologies
• New wave of E-commerce boom will be here again: with conventional retail hit by the financial crisis and with consumers trying to spend their money more cautiously, 2009 will bring major growth of new online offerings. We expect strong demand for various e-commerce solutions based on off-the-shelf components (OTC) platforms that do not require significant efforts for customization and deployment (e.g. OTC platform provided by Elastic Path (http://www.elasticpath.com )).
• Wireless breakthrough to be continued: further proliferation of 3G/4G networks along with new home networking technologies, such as UWB and 802.11n will lead to substantial growth of interactive products based on high-definition content.
• Multi-platform mobile applications: with appearance of Google Android the market of mobile platforms has become even more diverse. Therefore, it is expected that successful mobile application vendors will spend more efforts on porting and customization of their products.
• Cloud computing will go from initial hype to real-life applications: the most important implication of expected wider adoption of the cloud computing concept is appearance of new SaaS applications targeting both consumer and enterprise markets based on grid computing, federated identity management and next generation web platforms. This, in turn, will boost the demand for the related products and technologies.
Luxoft, a member of the IBS Group, is an emerging global leader in application and product engineering outsourcing services for enterprise IT organizations and software vendors. Luxoft builds lasting partnerships with its clients, such as Boeing, Deutsche Bank, UBS, Dell, IBM, Sabre and other global leaders, based on the culture of engineering excellence, innovation, and deep domain expertise. Luxoft offers global delivery capability through its network of state-of-the-art delivery centers in North America, Central & Eastern Europe, and Asia. Luxoft’s customers benefit from the right mix of technology skills, industry knowledge, best-of-breed processes and methodologies, and a choice of engagement models.
Luxoft is the recipient of the 2007 Frost & Sullivan Global Outsourcing Growth Excellence & Customer Value Leadership Award, as well as the Applied Innovation Award from the IAOP and Wipro, ITAA and Forbes (together with Deutsche Bank).