What to Expect from Managed Services in 2012

Outsourcing and managed services are constantly changing. We examine three ways the industry will adapt to technology and business changes this year.

By David Kruzner, EVP and the Co-head of Consulting & Solutions, iGATE Patni

Outsourcing and managed services are consistently dynamic issue among IT buyers -- and 2011 was no different. With the rise of cloud computing, continued merger and acquisition (M&A) and a turbulent season of deals and revenue fluctuations among the largest providers, outsourcers are under more pressure than ever to expand their offerings and deliver a greater value to the overall business. Here are three particular ways the industry will adapt to technology and business changes next year:

2012 Prediction #1: Service offerings will become more granular and outcomes-based

This year, the continued rise of virtual and cloud-based delivery technologies has made IT services more flexible and scalable in their consumption. This required outsourcers to become more sophisticated in the variety offerings they bring to their implementations.

Specifically, outsourcers strived towards establishing a microvertical approach, with service lines broken into specific business processes. This granularity was driven by customer demand, as many organizations are making their buying approach more sophisticated due to external cost pressures and the need to align to business goals.

Although the offerings diversified in 2011, 2012 will be a key in establishing accountability. As a result, the next step will be an increased emphasis on business outcomes.

A business outcomes-based model implies that clients pay for the business value the outsourcer creates, rather than the time and materials spent on a project. Given the pressure on the IT department to closely align to the business, managing services providers in a business context will be the next logical step for the industry next year. It allows a shared risk between the service provider and the overall business, leading to additional accountability and shared success between enterprise and managed service providers (MSPs).

2012 Prediction #2: Continued economic pressure will fuel industry gains

With IT budgets remaining tight, organizations scaled back their outsourcing investments in 2011, leading the Everest Group to report that IT outsourcing transaction volumes fell by 7 percent, and business process outsourcing fell by 12 percent. However, 2012 is poised for a recovery, as more than 40 percent of corporate IT leaders said that a double-dip recession would lead to increased outsourcing in their organizations, according to an October survey conducted by outsourcing analyst firm HfS Research.

The projected gains are due to an increased technological sophistication among IT outsourcers. Think of it as a shift from "Version 1.0" (labor arbitrage and staffing help) to "Version 2.0" as high-end consultants, managers and integrators. Businesses will again realize that outsourcing does deliver strategic value to an organization, allowing the IT department to focus on core business issues and better connect with the overall business.

2012 Prediction #3: The cloud will enable BPO providers to become consultants and end-to-end partners

Many IT professionals think of outsourcers in the traditional context of labor arbitrage. Projects are handled by third parties in a cost-effective fashion, allowing the internal IT department to focus on delivering strategic guidance. However, with the cloud conducting off-premise management as well -- at a more cost effective rate, no less -- this strategic capability is curbed, leading many to wonder how outsourcers will react.

As a response, MSPs have evolved to consultants on a variety of infrastructures and portfolios. With many having extensive experience in portfolio rationalization, MSPs now have the knowledge to evaluate which types of applications are best suited for a complex IT environment. Many also have a diverse ecosystem of partners and providers, alleviating issues of becoming stranded with a particular vendor. This consultation is end to end, from the selection phase through implementation and ongoing management. The higher quality of work has been demanded throughout the client base; it is expected of providers to elevate their value in order to cater to this need.

Summary

Last year was marked by change among the outsourcing industry, as tighter IT budgets and advanced delivery technologies impacted a traditional outsourcer's business model. That said, these are the challenges that enable the industry to evolve and continuously evolve to deliver to clients. In 2012, enterprises should share their challenges with their BPO provider and work together to deliver the highest quality service and performance to the overall business.

David Kruzner is executive vice president and the co-head of consulting and solutions for iGATE Patni. You can contact the author at david.kruzner@igatepatni.com