World is one crazy place all the way. It comes up and it goes down and it picks up again. This is the pure logic and the trend in the outsourcing world.  If you are going to learn some thing new from previous years you would fail to understand the trends of future years, coz the relation is not build within the source but the segments are always out casting the life and the line of business trends.
Analysts predict, the tech services market is about to undergo a massive transformation that will call traditional provider business models into question.

Four factors will combine to dramatically change the dynamics, economics, and competitive landscape of IT services over the next three to four years:

1) the “restructuring economy”;

2) innovation moving to the edge of the enterprise;

3) the redefining of buying and governance dynamics in accounts; and

4) “as-a-service” becoming the norm.

This is the first in a series of reports that detail the success imperatives for tech services vendor strategists. The five initial success imperatives include: a ruthless continuing focus on process excellence and efficiencies; portfolio management with a product marketing and proactive solution packaging mindset;

a sales strategy that builds and rewards a new type of client relationship; a culture and processes that drive success across client and partner ecosystems;

and a management vision and thought leadership underpinned by strong governance.

The above mentioned report offers a forecast of why and how the IT services model of today will cease to exist by 2020. Forrester sees at least nine new services entering the market as cloud/SaaS redefine the services business. Selective sourcing and utility pricing models broaden their footprints. Digital natives and the advance of business (unit) buyers push traditional IT into the background. Standardization in cloud/SaaS solutions create pricing transparency and profound pricing pressure on traditional service models. Cloud/SaaS drive increasing standardization and process industrialization of services leading to delivery models based on solution partner ecosystems.

Like ITO, the BPO market is dynamic and currently in flux. Here are few BPO trends you should follow:

BPO Spending

The worldwide business process outsourcing (BPO) market is forecast to grow by 6.3 per cent globally and 17.9 per cent in the Asia-Pacific during the year 2011, says a study by market research firm Gartner. “While growth remains strong in developing economies, the U.S., the world’s largest BPO market, presents a mixed picture for the global market,” Gartner Research Vice-President Cathy Tornbohm said in a statement. Gartner said that growth in the Asia and Asia-Pacific BPO markets would be positive and was expected to be 17.9 per cent in dollar terms during the year 2011.

The global IT outsourcing market has traditionally outpaced the BPO market in growth, but that’s changing. Accenture estimates mainstream BPO expenditures will top $300 billion by 2012. Gartner expects higher demand for services related to customer management (CM) BPO, HR outsourcing, banking, financial and billing BPO services and supply management BPOs through 2015. Most growth will centre on the key regional economies of India, Australia and China, the statement said.

Non-Linearity and Supplier Consolidation

Few years back, Robert H. Brown, Gartner in his report entitled-Business Process Outsourcing Vendor Consolidations: Is Your Contract at Risk?, points that supplier consolidation will be in demand in coming years. BPO buyers should expect consolidation throughout the BPO competitive landscape because of the economic crisis, loss-making contracts and inability to adapt to standardized delivery models. Understand the key signposts to watch for among BPO vendors that might be caught up in the shakeout.

Speaking of non-linearity, Non-linear revenues have emerged as a new focus area and talking point with large Indian IT vendors. Non-linear revenues account for only ~8% of revenues currently for large IT companies. Over the next 5-7 years, though, large IT companies expect them to account for as much as 30-35% of revenues.

Non-linearity implies that revenues from products, platforms and solutions are linked to usage/savings by clients rather than the efforts deployed to provide these services. Indian IT-BPO companies earn non-linear revenues primarily from products (for TCS and Infosys), platform-based BPO services (WNS, Genpact), and infrastructure services (HCLT, Wipro). These services account for 15-20% of total revenues for IT companies as of now but only a fraction of the above services currently use non-linear models.

Non-linear pricing models result in higher revenue productivity per employee and improved margins for companies. For example, Infosys’ revenue per employee for its products business in FY09 is ~70% higher than the company average. We believe that for a 5% shift to non-linear revenues, the EBIT margin gain could be 90-110 bps, assuming companies make a 45-50% EBIT margin on their non-linear part of revenues in a steady state.

Large IT companies believe that non-linear revenues could account for as much as 30-35% of their total revenues over the next five-seven years.

Smart Innovation

Nigel Hughes, Compass Management Consulting, in his article (BPO: Wheres the Innovation?)-on Globalservices websites- expresses, that organizations seeking innovation from BPO initiatives often fail to achieve desired results. A variety of factors are at play, including mismatched expectations, poorly defined objectives and governance structures, and a lack of clear measures to chart progress. What can clients and service providers do to more effectively drive innovation from BPO arrangements?

For client organization executives managing BPO relationships, the goal of “innovation” continues to be elusive.  Part of the challenge lies in defining innovation and recognizing and quantifying it after the fact. Then there’s the issue of mixed signals and unrealistic expectations – “but we want cost reduction and innovation.”  And, there’s always the sticky question of who’s responsible for delivering innovation, and who’s to blame when it doesn’t happen.

Another critical issue is measuring innovation and its impact on the business.  Roundtable participants discussed ideas around how to track the acceptance rate of innovative ideas introduced by the service provider team through an innovation review and dispositioning process as part of the strategic governance framework.  The best frameworks will report the speed and effectiveness of both the service provider’s innovation generation and the client’s disposition cycle.

Knowledge Process Outsourcing

Markets worldwide are becoming knowledge-intensive, with an organisation’s ability to harness knowledge increasingly shaping their decision making processes and determining a sustained competitive diff erence. As this reality sets in, organisations are driving demand for globally dispersed talent pools in an endeavour to off shore skill-oriented work to regions that off er a compelling value proposition. This in turn is creating a Global Knowledge Services Outsourcing industry that was valued at USD 2.9 billion in FY2010, more than double from USD 1.2 billion in FY2006, and represented a 24.7 per cent CAGR over this period. While the industry’s ability to deliver core operational benefi ts and consequent adoption by organisations led to a robust compounded annual growth of over 41 per cent over FY2006-08, the growth moderated to 10.0 per cent CAGR over FY2008-10 as a result of the fi nancial crisis of 2008 that led to worldwide economic declines.

This represents the next wave of outsourcing as organisations push the envelope to exploit cost efficiencies by outsourcing elements of their core operations as opposed to outsourcing of supporting business processes. These include services like Market Research, Business Research, Data Management and Analytics as well as outsourcing of Legal Process Outsourcing, each of which is critical to a cohesive decision making process. These activities lack a standardised process-based approach and have a high element of intellectual intervention and personal judgement that leverages a combination of academic rigor and expertise.

Western organisations, ever in the pursuit of competitive advantage, were swift in recognising India’s ongoing transition to a knowledge economy. Their continued leveraging of a younger India for thought oriented and high skill jobs has placed the country at the forefront of Knowledge Services Outsourcing industry, with India occupying a staggering 70 per cent share of the global market. The industry’s success is being replicated in other countries of Latin America, Eastern Europe and APAC, where transnational corporations and Indian Knowledge Service providers are establishing operations to leverage niches, like availability of mathematicians or lawyers, as well as develop those markets for domestic Knowledge Services

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