The shift towards asset based services, IP, or automation has finally accelerated. This has been a long time coming, and the slow pace of change has been an ongoing frustration for capioIT. Many SI and services organisations have finally begun to apply the required innovation and change in business process that clients have been demanding for way too long. That is, services configured at speed with prime cost considerations. Virtually every acquisition by a services organisation now is expected to provide the scalability and “hustle” on offer for asset services.
Concurrently one of the major shifts in the broader global economic viewpoint has been the relative readjustment of currencies, in particular the return of the US dollar. Against the US dollar, the Euro has fallen approximately 30% in the last 12 months, and the Australian dollar, by 20%. This clearly has had a major impact on everything from fuel prices, to the price of a new iPhone. Clearly it has a material and significant impact on the economics of offshore service delivery (or any transaction priced in US dollars). The economic goal posts have shifted substantially.
At the same time, in certain key sectors of the technology services market, particularly around skills in analytics, cloud and mobility there are defined shortages of available skills increasing pricing and delivery model pressure.
For a range of reasons offshore services delivery is the current optimum model with most significant SI engagements having a majority of resources offshore or nearshore depending upon the geographic perspective and definition. Of course, Western Europe, and Australia has been one of the largest adopters of offshore outsourcing. When the Euro and Australian dollar was so high, In US$ terms there was limited incentive to focus on asset based and non-labour service delivery. A vendor could afford to simply throw more labour at the problem and not execute on improved process.
With the increased cost for service deliver, if offshore based vendors are to keep their margins (aside from the inevitable reduction in pure headcount) they need to focus on productivity and efficiency to drive successful customer outcomes. Clearly this is an increased acceleration of IP or asset based services. Finally economic factors will lead to an increase in automation, and faster outcomes to clients without having to rely on an old and increasingly broken model of headcount after headcount increase.
The final thought is that not every vendor will be able to make that shift. Whilst it is accelerating, just as there were laggards to offshore outsourcing, there will be many existing providers who either cannot make the shift, or like Fujitsu, CapGemini, EDS et al as offshore outsourcing accelerated, have to spend significant capital to still fail to play catch up.
The acceleration towards asset based service delivery is starting to live up to the promise. This changes the economics of services delivery. Currency shifts are going to only accelerate this and change the service delivery landscape in markets such as Australia and Europe.