Software outsourcing trends and the future of outsourcing companies

Marina Astapchik
IT Trends Research Specialist
March 6, 2015

According to a study by Gartner software outsourcing expenditures will continue to grow right up to 2018. However, this growth is expected to slow down in 2015. This year the growth rate is predicted to amount to 4.5%.

Moving on from these figures further, we start straight away with the most important troublesome issue about today's software outsourcing. Dwelling on software outsourcing companies' future, there is an issue that has to be resolved in a clear and unambiguous way: namely software development outsourcing and cloud technologies. Is the emergence of cloud services indeed the end of the software outsourcing era? Or do we deal just with shifting software development outsourcing models?

The time when software outsourcing companies sought to reduce costs by choosing software outsourcing simply due to its lower price is gone. Today customers are pragmatic and often make up their mind in favor of cloud technologies instead of bringing aboard new outsourcing partners. So, we have the challenge of determining whether this trend will diminish or simply remove IT outsourcing as a phenomenon, or whether cloud services are just a new form of software development outsourcing.

With our rich software development experience, we believe that, nowadays, the outsourcing industry has become more pragmatic. To learn user experience (UX) and react correspondingly is, undoubtedly, a top priority for outsourcing software developers who want to stay afloat. It seems rather logical and prudent that outsourcing, as well as other software development industries, are expected to follow the end-user centric principle like never before. Therefore, today’s software outsourcing is simply driven by new cloud technologies meant to magnetize customers in the near future. By the way, J.Harris and G. Michael of Accenture reported about the merging of cloud and software outsourcing services in 2011. Since then, software outsourcing companies have really taken a pragmatic cloud approach to services they deliver.

Today, software outsourcing developers offer different and new cloud services to build and manage a customer's data. Cloud services just make it easier to sign on them on in comparison with seeking new suppliers.

On one hand, you have infrastructure as a service, portfolios of cloud products, a number of cloud platforms, etc. On the other, you have cost benefits and overhead reduction, improved flexibility, quicker time-to-market. Compelling, isn't it? Nevertheless, companies still have to apply the same diligence for traditional software development outsourcing.

Recently, IBM authors have reported the transition to cloud as a new outsourcing model. According to their report, customers should follow some security rules while using cloud technologies:

1. know your "travelling partners" well (in other words, choose reliable software outsourcing companies)
2. protect your passengers
3. keep everyone on course
4. chart the itinerary together (companies' needs as a center of the whole project)
5. plan for arrival (clear scheme of actions)

It doesn't do any harm to stress once again that using the cloud as electronic outsourcing does not make the rules mentioned above unnecessary but merely stresses their importance. Cloud technologies are on the rise and are considered to be a good way for outsourcing companies to “shake the plum tree” when it comes to profit. The conclusion is to be extra vigilant for customers and choose reliable service providers while being proactive for outsourcing companies in order to prove their competence. Even if more new outsourcing models arise, this sphere is a road with oncoming traffic.

Advanced cloud technologies not only involve more competition among outsourcers and other providers but also make governments take a closer look at corresponding regulation to ensure information privacy and security. Taking into account the Edward Snowden scandal, European companies and officials implement strict solutions to mitigate possible information loss and leak. Stricter regulations and rules are expected to come into effect in 2015 and later.

Apart from that, software outsourcing companies have always been affected by geopolitical risks. As an example, we can mention the warnings of analysts in light of tensions between India and Pakistan. The same conflict is present in today's situation in Ukraine and its negative impact on the outsourcing industry. Prior to the crisis, Ukraine's IT outsourcing industry was booming, with the annual market growth of 10-20% according to different sources. The crisis has certainly provide to be bug in the butter, making customers be more vigilant while outsourcing to Ukraine.

As the industry becomes more and more comfortable working with cloud technology, it becomes more and more standardized, becoming more similar than different. Clouds, along with utility computing and virtualization, are expected to foster the benefits of outsourcing standardization for customers and outsourcing customers.

Moving on, it is worth mentioning that a narrower specialization is the future of IT outsourcing companies. The outsourcing industry will set a priority on outcome-based contracts. This means that under the pressure of the world’s current economic situation, customers want more efficiency, performance and productivity when they pay money for a service. According to some analysts, companies will seek several providers with domain expertise rather than contract a provider with the lowest price services. In light of the growing popularity of cloud-based services and SaaS, the number of service-outsourcing providers each customer works with will skyrocket.

Despite these new tendencies, traditional software outsourcing will manage to find its place in the sun because companies take efforts to reduce operational costs, redirect resources into their main activity and retain their competitive edge on the market.

Elinext Group projects:

FX Grant financial services website
Loan Garage web-based system
Financial and accounting SaaS application

Industries and Technology Areas:

Industries: Outsourcing Development

Technology Areas: outsourcing software development, software development, web development

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