Ten IT outsourcing trends to watch in 2014

IT outsourcing experts look at the year ahead. And if they're right, this could be the year customers -- and a few robots -- take greater control of the IT outsourcing space.

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This year, the IT services industry saw customers doing more of their own IT services deals, testing the service integration model, and continuing to struggle with outsourcing transitions. ComputerworldUK's sister title CIO.com again asked outsourcing observers to tell us what they think is in the cards for the year ahead. And if they're right, 2014 could be the year customers--and a few robots--take greater control of the IT outsourcing space.

1. The Rise of the Machines

Say hello to the latest IT services professional: the robot. "2014 will see significant growth in the development and implementation of robot-like technologies that will automate many tasks currently performed by full-time employees in [outsourcing] deals," says Shawn C. Helms, partner in the outsourcing and technology transactions practices at K&L Gates. "Given the rise of robots replacing people in manufacturing and logistics, it is not a stretch to predict that robots will move up the intellectual value chain as artificial intelligence continues to develop."

"The rise of smart machines will have a radical effect on the IT and outsourcing environments," says Jonathan Crane, chief commercial officer for IPsoft. "What is still unclear is what either of these industries will look like in the end. Will these tumultuous changes have a lasting effect? Could this be the beginning of the end of the labour arbitrage era?"

At the very least, expect an increase in automation generally. "With the cost benefits of labour arbitrage being largely harvested and labour costs inevitably on the rise, CIOs will need to look for alternative opportunities to reduce or contain operating costs," says Joe Nash, principal in Pillsbury's global sourcing group. "That means looking for ways through automation to reduce the amount of work it takes to complete an IT function or service, not the cost of the labour to do it."

Process automation will become integrated with service provider solutions this year, says Chip Wagner, CEO of IT outsourcing consultancy Alsbridge.

2. Hybrid Offshoring Heats Up

"In 2014, offshoring to a supplier will not be the default," says Atul Vasithsha, chairman of outsourcing consultancy NeoGroup. Rather, a hybrid model, combining insourced and outsourced offshore services, will gain attention as an alternative.

"Companies are starting to invest more in global business services models, [which combine] the best of shared services and outsourcing under a common governance model. This is seeing processes being offshored in captives by industries that have traditionally been reluctant, such as media and entertainment," says Vasithsha.

Indeed, this year will see a mix of outsourcing models overall. "Most companies need to get the right combination of best talent and most-cost-effective IT services," says Scott Staples, president of Americas at IT service provider Mindtree. "The best sourcing strategies treat outsourcing and insourcing as complementary not competitive, and leverage onsite, onshore, offshore and nearshore options all in the same model."

3. An Increase in Insourcing

"Of the IT services historically outsourced, 20 to 30 percent will be brought back in-house as buyers are more comfortable to create retained organisations that not only govern the services, but start to move more into operational control of the services," says Stan Lepeak, global research director for KPMG Advisory. Companies will rely on IT service management frameworks like version three of the Information Technology Infrastructure Library to manage the increased insourcing.

But expect the industry press to make a bigger deal about such backsourcing than it deserves, says Wagner of Alsbridge.

4. Service Integration Comes Home

IT leaders have given third parties a shot managing their multi-sourced environments in recent years. In 2014, they'll take on service integration themselves. "Following a period of experimentation with various outsourced models, client organisations will increasingly focus on service integration as an integral core competency and take key functions back in-house," says Lois Coatney, director with outsourcing consultancy Information Services Group (ISG).

"In outsourced models, clients have found they lose visibility and direct control of service management effectiveness, and that they become too remote and unable to fill their fiduciary responsibility. Clients are recognising that a solid internal service integration capability provides better flexibility and knowledge of the business required to onboard new and specialty service providers," says Coatney.

5. The Cloud Gets Grounded

There's little doubt that cloud computing is here to stay, but businesses have struggled to managed such IT services effectively. "In 2014, we expect clients and service providers to further define their strategic objectives for cloud services, applying consistent metrics to quantify their return on investment and navigate a rapidly evolving contracting environment," says Scott Feuless, principal consultant with ISG. "One key will be progress towards normalised measurement frameworks that enable meaningful comparisons of alternative solutions."

Ultimately, companies will be able to perform apples-to-apples comparisons of different cloud options, as well as comparisons of cloud vs. traditional solutions. "The result will be significant progress in reaping the benefits of cloud services, as buyers avoid the mistakes of early adopters," Fueless says. "Service providers will adjust their offerings to meet the needs of a more cautious and educated market."

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