It services still growing fast, but ‘least cost wins’ is stifling innovation

That’s the view from analyst Gartner, which says that the first half of 2008 have shown mixed results. “In the first quarter of 2008, results for the top nine providers came in above expectations, and several market leaders have expressed optimism for the remainder of 2008,” says Kathryn Hale, research vice president for Gartner. “In addition, the continuing decline of the dollar has, and will continue to contribute to, market growth as expressed in US dollars. However, at the recent Gartner Outsourcing Summit in Washington DC, some providers indicated that some outsourcing contract signings are being delayed and some projects are being placed on hold.” Core outsourcing – meaning IT management and process management – remains the highest growth area in the market, she says, making up 42% of total worldwide IT services end-user spending. “Buyers look to process management as a remedy for cost control for short-term impact, and the increase in availability of global delivery capabilities makes BPO [business process outsourcing] an attractive cost option,” says Hale. But she also notes two causes for concern. “First, the rate of innovation in providing new service offerings is sporadic, at best, and strong return-on-investment stories are hard to come by. At the same time, innovation in delivery is not growing as fast as hoped: “A second fundamental problem in IT services is the inability of providers to provide compelling value statements about the services they provide, whether in offerings or delivery.” “The result is a common buyer mentality that focuses on IT cost takeout and adopts ‘lowest cost wins’ decision-making in its services and sourcing decisions. This inhibits the needed innovation for IT to and add value, and also restricts the level of innovation that providers are able to offer.”