Meet the 2007 Global Services 100 - InformationWeek

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IT Leadership // IT Strategy
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1/25/2007
03:59 AM
Rusty Weston
Rusty Weston
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Meet the 2007 Global Services 100

Our sister site, Globalservicesmedia.com, lists the world's top outsourcers.

The burgeoning practice of global services — distributing business and Information Technology (IT) work beyond your country’s borders — is beginning to mature. The signs aren’t quite as obvious — or awkward — as puberty, but the industry is evidently hitting its stride. David Bass, Manager, Application Development and Maintenance, Time Warner Customer Service, notes that “The roles of internal employees have changed,” as a result of his company’s global initiatives.

“We encourage our employees to enhance their knowledge of cutting-edge technology,” says David Bass. “We need employees to be system analysts, business analysts and architects and not to do software coding any more.” Apparently the companies Time Warner hires to handle that load are more than happy to accommodate the work.

Increased market competition is also evident. “The globalization of services is at a torrid pace with focus on greater value generation,” says Atul Vashistha, CEO, neoIT, a services globalization consultancy.

While high margin, transformational consulting work is where most service providers aspire to go, the lure of steady hosting and maintenance initiatives, back-office paperwork and customer contact centers is money that is rarely left on the table. While no consensus exists about industry consolidation in 2007, there’s widespread evidence that executives with global sourcing experience will be much in demand by organizations looking to exploit its enormous potential.

Apparently customers are pleased. A recent report by Capgemini and IDC titled From Transactional to Strategic Business Process Outsourcing (BPO), finds that:

     
  85% of companies are saving at least as much as they invest in outsourcing
     
  63% of companies are investing the savings back into the organization to improve operational performance, drive innovation or support growth
     
  44% of businesses surveyed said the most important criterion in selecting a BPO provider is its ability to deliver transformational services.

Not surprisingly, service providers are sanguine about 2007. N. Chandrasekaran, Tata Consulting Group’s EVP and Head of Global Operations, expresses optimism about the industry’s prospects this year. Chandrasekaran cites a Forrester Research estimate that U.S. purchases of IT goods and services will grow by five percent this year, reaching $1.55 trillion. While such numbers are tricky to substantiate, one look at TCS’ financial statement speaks volumes about the rapid growth of this industry.

“In our most recent quarterly earnings (Q3 FY 2007), we added more than 7,800 employees, bringing our total strength to 83,500 employees, coming from 60 different nationalities,” boasts Tata Consulting Group’s Chandrasekaran.

More impressively, perhaps, TCS was the first Indian service provider to generate one billion dollars in a quarter. And the company has doubled in size every 30 months, he adds.

Yet Chandrasekaran ventures a bit too far with his assertion that their customers are consolidating their IT-services providers. As we have seen and reported in the past year, multisourcing deals are now quite common.

What’s rare is to hear a large corporate customer putting all of its proverbial eggs (IT projects) into one provider’s basket.

But while the industry itself is rapidly maturing there are a fair amount of mergers and acquisitions in the services field. But the long-expected consolidation of service providers has not come to pass.

What Margins Indicate

Outsourcing has moved past early adoption to mainstream acceptance asserts James Friedman, a senior analyst covering business services at Susquehanna Financial Group, an institutional research, brokerage and trading firm. One reason is that there is “significant acceleration in SMBs [Small and Mid sized business] outsourcing, though as a rule SMBs are more inclined to outsource onshore.”

And there are several subtle drivers as well, he notes, ones that don’t get talked about very much in public. “Customers are increasingly aware that their competitors are outsourcing,” says Friedman. And this: “Customers are also aware that the dollar continues to slide against the Indian Rupee, the Philippine Peso and even the Canadian Dollar (long term).”

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