IT professionals may be forgiven for feeling some apprehension
as to what the collapse of the US sub-prime mortgage market and the
ensuing global credit crunch could mean for them. There is much
talk of slashed budgets, cost-cutting and downturn trends.
The credit crunch initially hit the US financial services
sector, but the volatility triggered by Northern Rock's woes and
rumours of other UK financial organisations in trouble mean that
the crunch will soon filter down to UK plc as a whole.
Banks are struggling to pull in cash to support their liquidity
ratios. Soon, many business sectors will find it harder to get
their hands on funds for investment, capital expenditure and
growth. Only those companies with healthy balance sheets and
capital reserves are likely to be viewed as safe lending bets by
the banks.
But the gathering downturn's clear threat to the IT sector is
also accompanied by a raft of opportunities. In a recent report the
UK's National Outsourcing Association predicted that businesses
would start looking to outsource high value-add functions such as
business processes, application development and IT operations.
Offshoring is the obvious answer for many businesses because it
reduces the costs of transactional processing and IT
development.
Safe but sorry?
Although many businesses may feel the safest thing to do is to
consolidate their operations and pull back their spending on IT and
outsourcing, there is an argument that spending now could reap
benefits when the market turns. Investing in IT and business
process outsourcing (BPO) could act as a transformational catalyst
to address operational issues, cut costs and focus resources on
core business areas.
Outsourcing also helps businesses improve their financials by
selling existing assets and operations to suppliers and removing
operational costs from the balance sheet.
All of this is fine, and when cost savings need to be made,
offshoring to cheaper locations makes sense. But what of those
IT businesses and professionals in the UK who see their jobs and
contracts move abroad?
The
UK IT sector can improve its position by moving up the value
chain, identifying areas which are not as sensitive to costs or
downturns. Examples include supporting and developing systems
needed by outsourcing suppliers, particularly those in BPO and the
emerging
knowledge process outsourcing (KPO) sector. Early adopters of
KPO and suppliers of bespoke applications could be well placed to
weather the current economic storm.
The IT sector could also benefit from other trends that will
appear as cost cutting becomes the business watchword, such as:
● Governance outsourcing: companies that have outsourced their
IT and BPO buy a contract management and governance service that
reduces the costs of managing outsourced deals by reducing the
in-house department and servicing information systems, contract
payments, service level agreement monitoring, change control
services, and so on.
● A move towards project-specific, one-off outsourcing deals
will favour agile suppliers able to offer short-term,
business-specific services.
● Businesses are likely to demand volume-based pricing from
their IT service suppliers as a way of controlling costs.
● Multisourcing will decline because of the expense involved in
monitoring a multitude of suppliers.
● UK IT suppliers may offshore their own software development so
that they can concentrate on innovation and delivering solutions as
well as creating powerful sales capabilities.
The challenge for the IT sector will be to respond quickly to
the changing demands and an increasingly global marketplace.
For agile businesses, the rewards could be great.