The Changing World of Infrastructure Outsourcing

In much the same way that application outsourcing is being redefined by the combination of offshoring, service-oriented architecture, and Software-as-a-service (SaaS), the delivery model for infrastructure outsourcing is challenged by a number of external drivers that will fundamentally alter it.  The convergence of the value propositions for the traditional global providers with those of the emerging offshore suppliers, a maturing remote infrastructure management delivery model (RIMO), and rapid growth in labor arbitrage by traditional suppliers is driving consideration of what the optimal platform for infrastructure outsourcing should be going forward.  

According to Ross Tisnovsky, Vice President of ITO Research at Everest Research Institute, and Senior Analyst Rod Bourgeois of Sanford C. Bernstein & Co, offshore RIMO suppliers still hold a minor share of the IO market; nonetheless, there are increasing signs of the sophistication of RIMO leading to a growing convergence of the models of infrastructure delivery. The trend poses a challenge for buyers who need to understand the complexities of the offerings and suppliers who must refine their strategies, said Tisnovsky.

"The convergence of IO models is driving offshore suppliers to one of three choices," said Tisnovsky. "They can continue to adopt key elements of the IMS model, build added value to their RIMO offering or simply continue to focus on classical RIMO services that rely on labor savings as a key driver. On the other hand, traditional IO suppliers are confronted with a simpler, but not less challenging option: focus on end-to-end infrastructure deals that avoid direct competition or develop variations of a converged RIMO/IMS offering with an active role of labor arbitrage."

Evidence of convergence can be seen as offshore suppliers of remote management services are not limiting themselves anymore to targeting smaller companies with a basic labor arbitrage value proposition, says Bourgeois. Large buyers (above US$10 billion in revenue) now account for 55 percent of the deals signed by offshore suppliers. Although the majority of offshore deals are still based on delivering remote services offshore, RIMO suppliers held 24 percent of more traditional 'IMS-like' deals in 2007 compared to only five percent in 2004.

Ross Tisnovsky and Rod bourgeois will be conducting a Webinar on July 10th on this topic.  You can register for it here.