As from July, Finance Week readers will have special access to the new Bathwick Service Quarterly Index on outsourcing vendors. Difficult economic conditions are driving service delivery models such as outsourcing and offshoring, says Dr Katy Ring, Bathwick’s Group’s principal analyst.

Organisations already seeing the benefits from outsourcing and offshoring, as well as organisations looking to enter a sourcing agreement, are being challenged to extract more value from service delivery while managing risk in a volatile environment.

Standing on the sidelines is not an efficient response and organisations must adopt a structured approach to evaluate and implement suitable alternate service delivery strategies.

In 2009 IT budgets are typically either flat or being reduced by around 5-10% as senior management teams are looking to IT budgets for part of their reduction in the corporate cost base. However, IT cost-cutting is not as straightforward in the current climate as it was, say, in the early part of this decade after the popping of the dot com bubble.

This is because in the last five or six years CIOs, working with their CFOs, have usually improved the performance of their IT departments by streamlining application portfolios, reducing infrastructure costs, improving governance, consolidating vendors and outsourcing many IT activities. This means that there is not much else to cut without directly impacting business performance.

The criticality of technology
Technology is now more tightly integrated with business functions than ever before. Not only does it support back-office functions via automated systems to the point where it is impossible to function without it, it has also fostered new sales channels, defined new customer segments, and even helped create new business models for organisations.

These factors make reductions in IT spending more complicated than ever. Simplistic cuts, applied across the board, may endanger critical business priorities from sales support to customer service. Even in the best of times outsourcing requires careful planning and structuring to deliver full value.

The temptation now is to move quickly to extract additional value from such approaches to service delivery. But in the face of growing economic uncertainty and increasing market complexity, outsourcing arrangements demand an even higher level of scrutiny and focus.

It is important to ensure the evaluation of potential service providers by thoroughly assessing the impact of the economic crisis on their current and future operations to understand the risk perspective for your organisation, as well as identifying additional value extraction opportunities.

Using the Index to make decisions
New locations (nearshore/offshore) may now offer an attractive proposition to structure the delivery model of technology services for you, so which vendors are in a good position to help with that?

The Bathwick Services Index provides a quarterly update on the leading 20 service providers in Europe, providing short profiles based on our analysis of their operational performance and business models as well as assessing their market standing in terms of strategic direction and market profile. 

A pulse-check of current market sentiment is also taken which is derived from our panel of CFOs, CIOs, financial analysts and M&A specialists. We also pull this information together into a short market overview and positioning chart. In this way CFOs and FDs can keep, briefly, but regularly, informed of the IT service providers the organisation already works with or is planning to work with.

The Index helps organisations assess vendor risk and potential vendor value for the senior management team to source IT service delivery.

Registered members of Finance Week can access the BSI to assist them in the quest for cost-effective, risk reducing outsourcing deals by following the link below.

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