Stability, Predictability, and Delivery

Achieving business and IT transformation in a stable format is a complex challenge, and recently bundling has become an increasingly influential component for delivering real change, but with added predictability and control.

At the start of 2012, the overall global outlook was cautiously optimistic, with the view that although the mature economies of Western Europe (even with the euro crisis) and North America were still struggling to regain their mojo, continuing Asian and Latin American growth would lubricate a much-anticipated rebound-however, the IMF recently re-lowered its projection for global growth in 2013 to just 3.6% (assuming the US will avoid the ‘fiscal cliff'). With ongoing instability across global markets and even in locations with historically robust growth such as China and India, the outlook for IT services in the coming months, is unclear. IT customers are demanding greater predictability and control as a more risk-averse perspective takes hold. Cost cutting has made a slight resurgence in Europe but remains less pressing in other geographies, while raising organizational efficiencies remains the top IT investment driver.

What the Future Holds...

This points to a trend that has been gathering pace over the past 12 months and is expected to continue into the near future. Enterprises are looking for greater reliability and stability in their external service providers and as a consequence, substantial focus on governance and control is prevalent. However governance needs to be seen as more than a set of project support operations. Expect this investment in the governance and management layers to continue in as a full suite/portfolio of offerings is increasingly being procured in ‘bundled packages' by buyers looking for expertise, stability, and breadth & depth of technology capability.

Given these demands, it is unsurprising the vendor community has generally gone on an acquisition and consolidation binge over the past few years, with over $40 bn of acquisitions occurring in the past year alone. A more recent phenomenon that Ovum expects to continue in the short run is the growth of what we call ‘acquisitive engagements'. Contracts that involve a substantial equity and/or ownership investment.

And this effort to gain a larger footprint is very closely tied to the phenomenon of IT services bundles accounting for a growing share of contract allocations (15 of the top 20 deals in terms of Total Contract Value (TCV) during the past quarter were bundled deals) driving extended contract lengths and greater value contracts. Competence in traditional ‘tower-based' service offerings will no longer suffice, as the IT services industry enters into one of the most turbulent periods in its history.

Wave of Change

The exploding interest in newer technologies, slowing demand across many traditional industries, enterprises considering alternative engagement models and an increasingly competitive landscape (with many new traditional and non-traditional entrants) are creating a wave of change. And these shifts are being driven by a need within the buyer community for real change-the need for IT to not simply deliver efficiencies from an operational sense, but to integrate with business requirements such as increasing customer satisfaction, facilitating market awareness and making IT a key part of an organization's competitive advantage.

As such, buyers are looking for relationships with their suppliers that touch all parts of an organization's delivery and customer engagement models, which is not something that can be resolved in a two-to-three-year multi-sourced tactical outsourcing deal.

Ovum expects bundling and its associated services to become more prevalent and continue to grow, especially among providers with a strong local presence and capability across products, services, and industries. Look to suppliers increasing investment in delivery models (both locational and asset-based), expanding their capabilities (both organically and through acquisition), targeting improved consulting and governance related solutions, as they seek to increase their footprint and presence.

(Article was first published in Globalservicesmedia.com)