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Technology: IT Outsourcers Squeezed by Fierce Competition and Failure to Adapt to Customer Needs
In this age of the cloud, global IT sourcing, and IT-savvy business managers, IT service companies are getting squeezed from all sides. Gartner focused on the challenges of one segment of the IT services industry in a recent study, infrastructure outsourcing, and found that many of the companies in that sector are in trouble. Gartner expects that as many as 20 percent of the top-tier IT outsourcing (ITO) businesses will be acquired or shutdown over the next two years. Many of Gartner’s comments and conclusions about infrastructure IT service providers seem applicable to other areas of IT services.
In the study, Gianluca Tramacere, research vice president at Gartner, concluded that traditional IO providers are at a ‘serious risk of extinction’. “Many will disappear – some slowly, some rapidly. But the question is, which ones and how fast?… Traditional infrastructure outsourcers can no longer survive in their current state. The market won’t allow it and customers are demanding much more”
Tracamere comments on some of the pressures that the oursourcers are under. He says that “as clients were asked to expand the scope of existing deals and new clients came in with full outsourcing propositions, those outsourcers opted to grow their revenue by following a ‘let’s win the deal and then worry about profitability’ philosophy. Although this model survived for a long time, a strong pressure on price, hyper competition and a worsening economic scenario brought the industry to a breaking point as ITO providers failed to adapt from an operational point of view.”
Gartner lists five regrets that outsourcing companies have for not anticipating changes in technology and customer requirements. These businesses weren’t able to transform themselves in time to stay relevant.
- Lack of development and validation of a viable long-term strategy
- Failure to adopt methods for managing lifecycle processes
- Failure to align the salesforce with a consistent customer profile and portfolio
- Failure to scale back on marketing
- Failure to aggressively pursue automation and virtualization
