Cloud Service Providers Challenge Traditional IT Outsourcing

17.08.2012

But, says Britz, enterprises may accelerate their overall outsourcing spending in support of their cloud efforts, which could take some of the sting out for traditional IT outsourcers. "We see more organizations evaluating and choosing to contract for IT outsourcing services to manage their [private and public] services," Britz says. "This will help to moderately balance the cannibalizing aspect of cloud on ITO through the next couple of years."

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Applications outsourcing is also expected to grow around 2 percent to $40.7 billion this year, according to Gartner, driven largely by legacy application support and off-the-shelf package implementations. But IT leaders, straining under their legacy portfolio and facing tight budgets, are shifting to a software-as-a-service () bias going forward.

Enterprise IT is continuing its move away from the staff augmentation model of outsourcing to fully embrace multi-year outsourcing contracts with outcome-based service-level agreements, which should keep the IT outsourcing sector growing through 2016, according to Gartner. Currently, the average enterprise outsources about 20 percent of its overall headcount. And that proportion should grow as enterprises remain reluctant to hire full-time staff. According to Gartner's first quarter Business Roundtable CEO Index, 58 percent of corporate leaders say U.S. employment would remain steady or lower (compared with the previous year when half of the executives thought it would grow).

The Gartner report does not indicate what percentage of the $250 billion outsourcing market will be delivered from what can be described as "offshore" or "nearshore" locations. Britz says it wouldn't make sense to do so now that offshore components are so ingrained in IT services delivery models.