Is the SME about to become the biggest IT services battleground?

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I keep being told by analysts and suppliers that the SME sector, particularly the medium sized companies, are on the verge of taking up IT outsourcing in large volumes.

I suppose it all started in January when the National Outsourcing Association gave its ten outsourcing predictions for 2010.

The NOA said: "The SME sector will increasingly recognise the benefits of outsourcing and even offshoring as it looks to growth opportunities whilst reducing overheads. Locations offering outsourcing services to smaller businesses such as Mauritius and Sri Lanka will continue to grow in strength and prominence as they learn to target the SME sector in countries like the UK for potential customers."

Since then I have had the same message from other organisations. Most recently Gartner. At its annual outsourcing and IT services summit this week the analyst firm said midsized companies were the most important targets for the European  IT suppliers. This is the result of the introduction of industrialised services. This is where a supplier builds a service, available in the cloud for example, and makes it available to multiple customers.

Suppliers will be prepared to invest in building services platforms if they can sign up lots of customers. Industrialise services promise up to 80% cost savings over traditional services.

And suppliers are looking at the SME. Tata Consultancy Services, India's biggest IT supplier,  told me it was trialing cloud services for SMEs in India. The plan was that if it is successful this could be transferred to other regions including the UK.

Also see: IT suppliers should come out the closet over SMEs.

It will be less disruptive for SMEs to move to these industrialised services because, for many, they do not have to replace existing outsourcing contracts, because they don't have them. For large enterprises there will be major challenges in renegotiation deals and checking the small print.

Gartner's Linda Cohen said although industrialised services will be available at the click of a mouse businesses will need a "parachute when signing deals the new way."
This parachute will be in the form of consultancies and legal advice.

Another thing that Gartner predicts is that offshoring by UK organisations will double in the next five years with the SME sector contributing significantly to this rise.

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This page contains a single entry by Karl Flinders published on September 24, 2010 11:02 AM.

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