The business of IT outsourcing, for successful companies, has been growing between 15 per cent and 30 per cent per year since about 2000. A lot of the growth has been in India and China and competition is fierce. At the same time, universities – especially in India and China, not so much in the U.S. – are producing more and more computer science graduates and, for that matter, many electronics and mechanical engineering graduates. Some universities have became like factories. The U.S. produces about 50,000 graduates per year, but India produces more than 150,000 and China produces even more with more than 300,000 computer science graduates per year.
Now, the industry is showing some early signs of saturation. Consolidation has seen a handful of players, say about 10 percent, dominate in revenue generated. And the large supply of new graduates often includes what I call “button pushers” rather than innovators, which definitely is affecting the quality of skills in the industry.
Big data and related analytics are emerging as a space in which companies are seeking solutions-based approaches. Minimizing data latency and offering real-time data that can provide time-critical situational awareness requires a multi-dimensional look at global supply chains and processes and customer behavior. Increasingly big data and big data analytics are driving top-level strategic thought. Highly skilled solutions-based providers are needed in this space.
Offshore costs in IT services have risen dramatically in the past two to three years as salaries have risen for successful companies in India and, especially, China. Additionally, the demand for increased computer automation in in many industries – banking & finance, retail, healthcare, energy, high-tech, services, media, CPG, insurance, telecom and manufacturing are examples – is driving up demand for skills to build and maintain the systems. That demand also is driving up salaries.
On top of this, the U.S. government has reduced the number of work visas it provides for foreign technical workers. This encourages local hiring on projects, which can drive up salary costs. Typically, even an off-shore solution will have as much as 20 percent of total resources dedicated to stateside efforts. It also is a huge issue for off-shore providers’ staffing decisions and capabilities.
The emergence of cloud-based solutions is, in my opinion and the opinions of a lot of experts, going to hurt the IT services business. Running applications in the cloud allows companies to reduce their IT staffs while the cloud providers concentrate on building and maintaining the systems. The multi-tenant nature and the move to "near out-of-the-box" solutions on the cloud also helps reduce costs and allows one application to serve many users, which lowers requirements for service providers.
One area in which cloud-based services already are dominant is customer relations management (CRM), and it’s starting to occur in enterprise resource planning (ERP) as well. Some of the major players in IT software products are beginning to offer cloud-based services. In one sense, they may be shooting themselves in the foot, in terms of license revenue generation, but, sooner or later, they may not have a choice. This also is an area that will remain sensitive to such issues as data privacy.
The advent of tablets and smart phones has created a huge demand for mobile computing technologies. Mobile services must work seamlessly with data and business functions in real time for business managers and workers. That raises issues of data security and privacy in addition to technical issues. Mobile technology also must work effectively for interfacing with a business’ customers.
Providers who can offer such services, and related support, as part of an integrated package can find a fertile field for revenue generation.