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Here is another round of predictions about the European IT outsourcing market next year. Today is the turn of Robert Morgan, director at sourcing consultancy Burnt-Oak Partners.
Yesterday I featured Matthias Mierisch, on Wednesday Sam Kingston from T-Systems gave his views, on Tuesday I revealed the views of outsourcing lawyer Mark Lewis of Berwin Leighton Paisner which followed the predictions of KPMG’s Lee Ayling.
Expect 2013 to see further blurring of the outsourcing sector
“The forthcoming year will see a further blurring of the realities and objectives for outsourcing and what precisely the definition of Outsourcing really means. Outsourcing as a term has become ubiquitous and symbolises the commoditisation of the original industry to a point where new models, measures and benefits need to be developed to give the industry focus and to redevelop new value propositions. The American giants of yesteryear are a shadow of their former-selves, all lack real CEO leadership and have cost bases that shout “physician heal thyself”. HP and CSC are on the critical list for heart and lung transplants and wheezing asthmatic IBM is not far behind. Accenture has leprosy and the rest … well they are the rest. Indian suppliers like HCL, lead the pack with devolved authority and solid processes and technical excellence.
Predictions for 2013 are by definition “outsourcing related” and not specific as everyone’s view of outsourcing is different. Cloud is cloud, security is security, big data is … well they are all marketing spin and industry rather than outsourcing specific.
However here we go, and in no particular order: –
European growth in old fashioned outsourcing
The economic crisis of 2008 is still echoing and Spain, Portugal and Ireland will lead the way, despite the internal protests, with culture shattering outsourcing deals benefitting mostly National or Regional players. This is because the global players have failed to invest, or consistently invest, ahead of time in key EU countries and regions. Choosing to do “token investment” only when a largely self-funding deal occurs. This does nothing to recruit and retain top talent and it is the client who suffers long-term. The Nordics is a great example where we do great business and have seen yo-yo investment and commitment by the likes of HP, Siemens and Fujitsu. Italy and France will of course tinker with outsourcing as usual and pull back from anything too large or too culture changing.
Service Providers on life-support
HP and CSC’s problems are well documented. However HP’s cannibalistic tendencies regarding their numerous CEO’s will rear up again and see Meg claiming unemployment benefit before the year is out. CSC has been selling its assets and may survive but not as we know it today. IBM is bereft of new ideas and will lose renewing client in profusion. Regional players like CGI Logica and Atos will benefit especially when the EU starts its new run of legislation (see below). Will there be any logo deaths in 2013? It is possible, but the break-up into saleable smaller entities seems logical and necessary
EU regulators take on the US. Three ground-breaking pieces of legislation are expected to enacted or at least trialled before the populace
Taxes on outsourced datacentre activities. The carbon footprint of large datacentres is a big concern and many companies gain the carbon count advantage by outsourcing these activities. “Tax them in-house or out of house” is the maxim, so high energy using datacentres will be hit will new EU taxes
Public Cloud is subject to the Patriot Act and as such all data can be inspected by the US authorities without permission, notification or an audit trail through any US registered company. The French government will pioneer legislation to “credit” French service providers to develop a zero American company exposure, meantime Brussels will hide their anti-American feelings behind carefully worded regulation to “control public cloud sovereignty”, cross EU border mobility and portability and potentially enhancement to the Data Protection legislation. Isn’t the fear of “terrorism” great for passing anti-competitive acts?
Such legislation will rip apart ridiculous Google and other contractual clauses on the provider having “perpetual ownership of all private data” under its control
A forth piece of legislation might occur to de facto restrict the movement of workloads (outsourced) to within the EU starting with central and local government. Aren’t recessions great for passing anti-competitive acts – see America you are not the only one, but thanks for the lessons!
New models UK PLC leads the way
Burnt Oak pioneered new and alternative commercial and operational model three years ago to largely deaf industry ears. Only HM Government listened and developed variants which now underpin some of the most innovative and revolutionary outsourcing deals being done in the world today. Based on mutualisation where a special purpose vehicle is formed to undertake a carefully designed and sponsored business model. The client retains a shareholding until the objectives are being achieved then it sells it shareholding to the service provider largely for the benefit of the transferring staff. For example the floatation of the Post Office will see 8% of the Market Cap going to the postmen’s pension fund. Other models give staff shareholding powers – the John Lewis model. This is outsourcing of the future. Eventually, but probably not totally in 2013, the tier one and tier two suppliers will understand that to survive they need to at least put such models in their portfolio of deal constructs
The death of loyalty and growth of commodity
Everything “on demand” is growing and indeed being heavily advocated by the big service providers. The facts are that these self-same companies have the highest cost of sales, highest paid sales staff and corporate overheads, seems strange. What these suppliers need is client continuity, contractual commitment and predictability. This is the antithesis of the sales and marketing messages they spew into the market. Volume will not make up for the profits of old fashion change orientated outsourcing. Clients will, especially if Burnt Oak has anything to do with it, run on-going checks on the commercial viability of suppliers – no one is “too big to fail” in this world anymore. This is not outsourcing anymore, this is IT consumerism on steroids.”