Businesses in second phase of IT outsourcing

The Australian outsourcing market has matured, with most organisations in second or later waves of subcontracting parts of their business, according to analysts.

According to Jens Butler, Ovum's principal analyst of IT services, the question for many businesses is no longer whether or not to outsource, but who to outsource to.

"There's a lot more maturity in the buying market," he told iTnews. "Most organisations have been through at least one phase of outsourcing in one way or another."

Michael Pain, managing director of Accenture's management consulting division, observed that many of today's outsourcing deals involve customers moving from one provider to another.

Last month, Nokia-Siemens Network won a seven-year Vodafone Hutchison Australia managed services contract that was previously held by Ericsson since 2002.

NSW's RailCorp and Melbourne-based BlueScope Steel have also this year announced the renewal of existing IT and business process outsourcing contracts with Fujitsu and Capgemini respectively.

"In a mature segment such as IT outsourcing, outsourcing contracts today also often mean a change from one outsourcing provider to several specialised providers rather than job cuts for internal workforces," Pain said.

While cost savings were previously behind the decision to outsource, today's business case for outsourcing typically includes capability, productivity, and service level improvements, he said.

Pain said organisations tended to consider outsourcing business processes like human resources, training, and finance, as well as application development, IT infrastructure management, and IT infrastructure through cloud computing.

Private sector companies may also choose offshore outsourcers for additional cost, skill and process automation benefits -- but program and service management usually stayed onshore, he said.

"Many outsourcing arrangements we are discussing with clients today are about improvements in specific business functions rather than just about cost-cutting," he said.

"This can be more rapid skilling of technical resources [through outsourced training], or it can be the availability of specific IT software skills that the client could not have hired and retained in the current tight labour market.

"The true measure of IT success is not how inexpensively it operates, but how much value it adds to the business," he told iTnews.

In a 2009 global survey of more than 500 CIOs, Ovum identified enterprise applications as the most outsourced technology at the time.

Thirteen percent of respondents were considering outsourcing business process, SOA/BPM, or converged voice and data networks within the following six to 24 months.

In the next two years, Ovum expects converged voice and data networks to be most commonly outsourced, due to the increasing network complexity to do with the adoption of IP-PBX systems.