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.