After a tight year, technology industry is looking forward to putting 2008 behind it. In 2009, however, most CIOs’ top priority will not be supporting the business’s growth goals. The CIO’s will be puzzled as to how organize IT more efficiently and dealing with new compliance demands.

Recently Wall Street & Technology organized a roundtable with experts to find out what challenges the CIO’s face in 2009. The experts:

-        Rob Hegarty, Managing Director and Practice Leader, Securities & Investments and Insurance, TowerGroup

-        Julio Gomez, Founder, Gomez Markets

-        Mayiz Habbal, Managing Director, Securities & Investments Group, Celent, an Oliver Wyman Co.

-        Robert Iati, Partner, Global Head of Consulting, TABB Group

The question was: how has the role of CIO’s change due to global changes in market place?

Rob: As we look out into 2009, it is important to take a longer-term view than the markets have taken in the past few weeks. The markets will come back, and for 2009 the biggest thing will be: Don’t take the strategic hat off permanently. It is going to be important for the CIOs and the industry to take a look at what is going to happen one to two years out. These times are the best times to position for future growth. If you can make your way through these times, and make decisions about how the world is going to look in two to three years, you are going to be much better off than the firms that have stuck their head in the sand and have acted purely tactically.

Julio: There is a major challenge for CIOs because they know what’s coming in the next year or two. They know they are going to be called upon to do much, much more with potentially much, much less. So potentially driving the efficiency in the IT organization is no small feat. They are going to have to figure out ways that technology can help.

Mayiz: Going into 2009, from a technology perspective I don’t think we are going to see a sea of change. It is going to be a disappointing year for technology firms in terms of IT spending. You are not going to see any major initiatives taken [by firms]. Some of the technology firms that have been capitalizing on the large upswings of IT spending will probably disappear. We may see a lot of acquisitions happening in this market, particularly in risk management and portfolio management areas. These areas have been fragmented for the past 10 years and there are many companies in this domain, and the downturn in the market is going to create opportunities for acquisitions and consolidation of customer bases.

Robert, TABB Group: The biggest issue is what the investment banking infrastructure will look like in a year or two or three. Clearly it has been discussed over the past two or three months. The situation you have now, with fewer large investment banks as they are now organized as commercial banks — where is the liquidity void going to be? Where is the capital commitment going to be that the [investment banks] had, where is that going to be filled? We see the more independent investment bank of the 1980s taking a larger role. We don’t see too many of those types of firms right now, but they will definitely be forming, and they will have to fill need in the market. And they will bring trust back into the market because the way they did business back then was more on a trust basis and there was more skin in the game for the ownership of these shops; we will see in three or four years a structure that we saw in the ’70s and ’80s. We think it will happen, and when it does, what does that mean for the medium term of the market?

One more question from Wall Street and Technology: Can the market wait for this to happen?

Robert: I don’t think it has a choice. You see the significant layoffs at these banks, and it will take that long for the markets to settle and understand what it is going to be in a couple of years. The market never waits, and the existing players will continue to move forward aggressively and probably more aggressively than they should at times. But I think we are always looking with a short-term focus but trying to understand what a three-year time frame would look like. No one in this industry is brave enough to look beyond three or four years. It is nice to say what the market will look like in 10 years, but in reality it is impossible to understand.

Based on materials: www.wallstreetandtech.com

2008 was a relatively stable year for the IT outsourcing. Business deals got smaller, but they grew in number. The second tier providers and Indian vendors did well, along with giants Accenture and IBM.

IT outsourcing providers were largely unscathed by the economic downturn throughout much of the year. By the end of this year, however, CIOs became too distracted by the economic destruction surround them to do any outsourcing deals. As markets crumbled and IT executives were concerned more about their prospects of employment, a decision-making around strategic cost cutting and efficiency took a back seat.
That’s all poised to change in 2009. The only problem is, that may be bad news for both IT services providers and their IT leader customers.

Garter view

“Whenever there’s a downturn people outsource more, not less,” says Gartner analyst Linda Cohen. “Organizations want to take costs out wherever they can. CFOs are pounding on their CIOs to just outsource it, just offshore it.”
The difficult economic conditions will push companies further than before to consider what stays in house and what goes to others. Additionally, demands by the business for further cost reduction will need to be addressed in an environment where many companies have already leveraged labor arbitrage to source the low hanging fruit.

CIOs may sign hasty deals for a short-term returns. In a case of what Cohen calls “convenient amnesia,” IT leaders may forget all the lessons they learned rushing into bad outsourcing arrangements and chasing elusive benefits. “Everyone has a gun to their head right now,” she says. “But the financial voodoo of outsourcing deals doesn’t work. You have to accept the reality that if you hand your mess over to a vendor, you’re going to eventually have to pay for that burden they take off your plate. You can pay it now or pay it later, but you’re going to have to pay.”

Bad deals can lead to degradation in service performance and price increases down the line. Smart buyers will ask for shorter term lengths, but in times of economic pressure rational thinking is hard to come by. “People do bad deals for short-sighted reasons,” Cohen says. “We’ve seen it before and we’ll see it again.”

For Vendors: Pain at the Margins

IT service providers will be too happy to sign on any new deals in 2009. Outsourcers may do anything for revenue, even if it’s outside of their hunting ground . It’ll be like 10 years ago all over again. “It looks like good revenue, but in the recent years, providers start to see profit problems,” says Cohen. Then the customer starts getting his one team replaced by another one, prices creep up, everything is a change order.”

Providers with cash will be king, giving Indian vendors the upper hand. They may try to buy up second-tier companies in the U.S., Europe and Asia, or buy into deals at a discount, just to get a foothold in the U.S. They will even buy up customer assets, something they’ve been unwilling to do in the past. “They’ll do anything for cash,” says Cohen. But as with any other contract, “a deal that looks too good to be true will read better than it lives.” But the offshore providers will face the additional pressure on their margins as the dollar continues to depreciate.

Outsourcing Innovation: Transformation? What Transformation?

Remember all that talk about how an IT services provider could be your partner in innovation? Forget about it.
“The focus will shift away from open-ended efforts,” says Stan Lepeak, research director of outsourcing consultancy EquaTerra. “Buyers will not have much appetite for transformation in 2009.”
“Innovation or big solution implementations will slow down dramatically,” agrees Cohen, “unless you prove I’m going to get back in cost improvements a lot more than I put out and it would have to be a pretty rapid ROI for any transformation.”

Bonanza of Green solutions

While usual outsourced innovation will be set aside in next year, the greening of IT outsourcing deals will prosper. “Purely environmental desires will take a back seat to explicit cost savings desires,” says Lepeak of EquaTerra. “But green that hits the bottom line will flourish.”
The only question is-who will see that benefit on their bottom lines?
“There will be a push by buyers on service providers to lower their cost of operations by employing green techniques and pass that savings on to the buyer,” says Cohen. “Service providers are trying to go green for own profitability. Buyers will push for that to become a cost improvement for themselves rather than a profitability and performance for the vendor.”

India and China continue to hold their ground as the leaders for offshoring services, says Gartner. The research and advisory firm, has assessed 72 countries as offshore locations to announce its Top 30 destinations.

The analysis showed that the dynamic nature of the market has seen a number of countries position themselves as credible alternatives to the BRIC countries (Brazil, Russia, India and China).

Ten countries from Asia Pacific were represented in the 30 leading countries.

These included the undisputed leader in offshore services — India — and the greatest challenger in terms of potential scale — China, said the report. The rest are a mix of mature environments that offer limited cost benefits such as Australia, New Zealand and Singapore and emerging countries with a variety of challenges, but attractive costs such as Malaysia, Pakistan, the Philippines, Thailand, and Vietnam.

“Countries such as Mexico, Poland and Vietnam have continued to strengthen their position against leading alternatives, while others have forced their way into the ‘Top 30’,” said Ian Marriott, research vice president at Gartner.

Although only seven countries from the Americas appeared in the final list of 30, these countries are becoming an attractive proposition for the largest buying market for offshore services – the US. Only Canada was rated “excellent” for language (with fluent English and French) but Latin American countries are able to leverage their Spanish-language skills increasingly in the US.

The final list of 30 countries included 13 from EMEA and for the first time saw two North African countries enter the leading countries in EMEA.

Locations such as Ireland, Israel and South Africa fared well for language skills, because of the quality and quantity of English-language speakers.

During the last 12 months, there has been significant activity in many countries to consolidate or grow their positions as leading locations for offshore services. As a result, four countries leaving the ‘Top 30’ this year were Northern Ireland, Sri Lanka, Turkey and Uruguay. The new entrants into the 30 leading countries for offshore services were Egypt, Morocco, Panama and Thailand.

A recent report from TPI shows a slowdown in the signing of outsourcing deals . According to the report new outsourcing contracts in Europe fell from 75 to 56 in the 2nd to 3rd quarter of this year and the only one significant mega deal was signed during the 3rd quarter. This has got people within the industry wondering whether we are about to see the decline in outsourcing contracts as more end users keep a close eye on the bottom line, maybe bring services back in house or just don’t do anything at all.

Despite TPI’s reports, organisations are going to turn their back on outsourcing altogether. Instead we may see a change in the nature of outsourcing deals.

In the past couple of years the mega deal has been consigned by many to the outsourcing scrap heap in favour of multi sourcing that is choosing separate suppliers for different processes.
This has allowed smaller, more specialised service providers to step into the limelight. However, with the focus moving back onto cost as the main deciding factor in outsourcing, having one outsourcing supplier will minimise management, due diligence and supplier selection costs. It should also provide the end user with savings achieved by buying in bulk. So maybe we are seeing a pause as mega deals, generally, take some time to set up.

As more and more organisations come to grips with the credit crunch, we will see outsourcing move to the top of the boardroom agenda. Outsourcing has always been associated with cost savings and now with all companies setting aggressive cost saving targets for next year we may see more and more outsourcing contracts come to fruition.

But in the long term cost is not the only parameter, other factors such as relationships, transparency and growth start to become important.

Responsible suppliers will know that and try to build value for their customers, because there is one thing that is sure about entering a recession, eventually you come out.

IT analyst house Gartner Inc has slashed its global tech spending forecast for next year to growth of just 2.3 per cent. 

The research outfit was forced to significantly downgrade its previous 5.8 per cent growth prediction for 2009 because of the financial storm currently thundering across the world’s economy markets. 

IT spending will hit $3.5tr next year, said Gartner yesterday. The firm also warned that businesses would cut back hardware, software, telecoms and services budgets as the credit crisis deepens. 

“Developed economies, especially the United States and Western Europe, will be the worst affected, but emerging regions will not be immune,” said Gartner’s senior veep and head of research Peter Sondergaard. 

However, the analyst firm remains optimistic about its full year outlook for 2008, which it doesn’t think will change dramatically despite the fourth quarter taking a hammering from the ongoing economic turmoil.

You are looking for offshore partner in IT outsourcing?

You are trying to take the challenges of outsourcing best way possible?

You still doubt about how to make offshore IT project successful?

You can easily do it and achieve perfect success. There are only two steps necessary to make any IT outsourcing successful. Let’s see what you need. The first step is to Find right offshore partner. The second step is to build successful co-operation.

When choosing a company to work with it is a good idea to answer some important questions:

1. What are developer skills and references? Developer had to have domain knowledge you need, respective skills and experienced specialists. The reference projects info is one of the best keys to realize whether you’ve found right company.

2. What is a quality policy? Of course, this is essential to make sure the developer will deliver the product working to your expectations. You might find out whether developer has quality standards certification, say, ISO or SEI CMMi. Have you paid enough attention to the developer’s quality management system?

3. What about location? Beyond reputations and skills, one critical issue for you is the developer’s country of origin. The knowledge of economic progress, democracy status, educational potential, etc. will let you assess potential benefits or losses of co-operation. Time zones difference can be very important for your comfort co-operation. Only two hours’ flight to partner is really great?

4. Is the security sufficient? This issue is closely interconnected with issue of location because regulated by legal framework to a great extent. Yet much depends, say, on developer policy in intellectual rights protection or approach to financial matters.

Yet there are also important questions to answer for you!

Here they come:

1. Do you document the requirements? The more your requirement are detailed, the more quality proposal will be prepared by your partner. Software requirements specification is the gateway to development start. Good offshore developer will always help you do it should your IT-stuff get stuck or there is no at all. Documenting requirements will also help the change processes run with success.

2. Have you found people responsible for projects at your side? Assign one of your managers as responsible for the project. He or she had to be able answer all questions arising in connection with project.

3. Have you made tools, information systems and processes available to developer? The developer will need access to the source code, defect tracking system, database or other platform applications, builds, etc. – the same project tools that the internal teams need.