Cloud computing may be more harmful to IT cos than anti-offshoring moves

BANGALORE: Offshoring votary and technology strategist John McCarthy says newer technologies like cloud computing will cause a bigger dent in the offshoring business model than any anti- outsourcing moves — real or rhetorical — coming out of the US.

“With the IT expectation gap — technology use is growing, but IT budgets are flat — rising, businesses are looking at instant, pay-per-use, on-demand models. The cloud will impact IT service providers in a big way. It may not replace jobs, but cloud computing with its ease of set-up and cost benefits, could become the politically correct alternative to offshoring,” says Mr McCarthy, vice-president and principal analyst at IT research firm Forrester. “The technology services market is about to undergo a massive transformation that will call traditional provider business models into question.”

“Service,” not products, and “in the cloud,” not on the computer, are just two lynchpins of this transformation that will push IT services vendors to continually predict future market demand and adjust strategy accordingly, he says. “More than ever, it’s imperative to understand where firms will rely on third-party providers in the coming year... and also where they’ll increase spend,” Mr McCarthy explains pointing to the shift toward new purchasing models based on operating rather than capital expenditures.

Which is why, he says, traditional ERP systems are failing and the focus is towards software as a service. “Infrastructure as a service is gradually making inroads around the edges of the data centre. The scope of storage as a service is increasing too,” he adds. But what do service providers need to do to stay at the top of this change? “A ruthless focus on process excellence; portfolio management with a product marketing and solution packaging mindset; a sales strategy that builds a new type of client relationship; a culture and processes that drive success across client and partner ecosystems; and a management vision underpinned by strong governance,” he says.

Given this, Mr McCarthy says top Indian service providers are on track to create domain expertise and capabilities, moving up the chain from vanilla application maintenance and development. “There’s also a move towards sophisticated pricing order — more outcome-based and not linked to just time and material — that is benefiting the outsourcing firms,” he says. In the same vein, however, he flays the second-tier technology providers for limping on without having a focus.

Forrester’s latest IT market outlook for Q3 of 2010 says services vendors will see more consulting and systems integration project work but outsourcing will lag. Revenue growth for IT outsourcing will lag the growth in IT consulting and systems integration, at least in the US, while telecommunications services revenues will start to turn positive in 2011, it says. Source: ET