IT Outsourcing Trends: Slow Growth, Cloud Computing: Page 2

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"In 2010, we see a continuation of the trend for shorter deals, shorter procurement processes, and an emphasis on making things work rather than engaging in complex strategies," the analysts said.

This is likely to lead many firms to take their IT services procurement in-house—so-called DIY sourcing. Yet Morrison & Foerster predicted that will be a mistake for many firms.

"While the DIY approach will often result in short-term transactional cost savings, inexperienced purchasers of outsourcing services usually suffer longer-term losses because they fail to identify many of the key components for long-term success. For example, with the increased focus on costs, buyers will try and save on governance costs and overlook necessary governance functions. Particularly when customers engage in multisourcing transactions, heightened attention to governance processes is critical. As a result, we believe that many of the raft of 2009/10 deals will run into problems because they have not been properly managed by customers."

IT Outsourcing Verticals

As the recovery gets underway, banks and insurance companies – which were among the hardest hit verticals of the recession and which put more deals on hold in 2009 than other sectors -- are likely to come back to the fold in 2010, particularly toward the second half, according to Morrison & Foerster.

The firm predicted increased activity in other verticals as well, including hospitality and healthcare, with healthcare reform in the US particularly driving the latter.

Cloud Computing and IT Outsourcing

Cloud computing is likely to take center stage in IT outsourcing in 2010, according to experts.

"2010 will be the first year in which cloud computing will have a real role in procurement decisions," Morrison & Foerster said. "To be sure, cloud providers must deal with the key issues of data security, privacy compliance and service level guarantees, but the market potential is too great for solutions to these problems not to be forthcoming."

The analysts noted they expect the outsourcing industry to begin seriously addressing these issues in 2010. That means cloud solutions will become an acceptable risk for customers. At the very least, the dramatically lowered cost of cloud providers will become a lever for customers to use in negotiations with their traditional sourcing providers.

Cloud computing is also likely to simplify the contracting process, Morrison & Foerster said, putting the focus on due diligence regarding the provider's solution rather than the development of detailed contractual language. In addition, cloud is likely to create new options for combining process, software and hardware in business process outsourcing (BPO) solutions.

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Tags: cloud computing, outsourcing, cloud computing contract, IT outsourcing, outsourced IT

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