Mid-Market Companies Paying Attention to ITO Despite Lack of Tailored Offerings, According to New EquaTerra Perspective Paper
2008-05-08 19:06:13 -
- Mid-market organizations are increasingly facing challenges in aligning business and IT goals, according to a newly released EquaTerra Perspective paper, The Issue: North American Mid-Market IT Outsourcing Trends. The paper is based on findings from a recent mid-market ITO trends study conducted by VentureForward, an independent research organization. Other top challenges faced by mid-market companies considering ITO include managing IT operation costs and finding and retaining top talent.
Stan Lepeak, EquaTerra's managing director of research and co-author of the EquaTerra Perspective paper, says these challenges, coupled with high IT budget levels, indicate there are a variety of unmet needs among mid-market organizations.
"While mid-market companies are forced to spend a higher percentage of their revenue to get similar levels of IT capabilities as larger firms, the positive side is that they also have the potential to reap significant cost savings within their IT operations," Lepeak says. "While the math is obvious, the key is determining how to reduce IT spend without negatively impacting the organization's IT capabilities."
Other key mid-market trends discussed in the EquaTerra Perspective paper include:
-- Mid-market organizations do not skimp on their IT investments. Twenty-five percent of respondents indicated their IT budget was between five and 10 percent of total annual revenue. Another 19 percent indicated that their IT spend was in excess of 10 percent of annual revenue.
-- Key drivers for ITO include cost reduction (indicated by 50 percent of mid-market buyers), followed by access to skills and resources (cited by 40 percent).
-- Few mid-market organizations plan to stop ITO efforts; most plan to make modest increases in ITO efforts across all areas of IT operations.
-- Mid-market adoption of ITO is lower than ITO adoption among larger organizations. Hosting services and storage management are the most frequently outsourced IT process for mid-market organizations.
-- Mid-market buyers typically utilize local or nearshore service delivery locations - only 8 percent currently have IT services delivered offshore.
-- Mid-market buyers are reasonably satisfied with their ITO efforts, with the most satisfaction (86 percent) indicated for outsourced application development and maintenance (ADM) services.
Opportunities Present for Top Tier ITO Providers to Penetrate Mid-Market
While the study shows mid-market companies are paying attention to outsourcing the fact remains that tier one multinational service providers have not had great success in penetrating the mid-market ITO marketplace. In fact, most ITO services are being provided by tier-two providers.
Lepeak notes mid-market dynamics are slowly changing. "As top tier providers, both on- and off-shore, begin to tailor their offerings to the mid-market, there will be more compelling opportunities for companies to explore ways ITO can help them achieve strategic business outcomes," he says.
Mid-Market Companies Weigh Opportunities with Potential Pitfalls
From EquaTerra's perspective, mid-market organizations need to consider several current market opportunities for delivery of ITO services, including the use of offshore services and other options for further reduced costs.
Ron Walker, managing director of EquaTerra's mid-market practice and co-author of the Perspective paper says, "We are certain that ITO will soon enable mid-market companies to reduce core delivery costs by 15 to 25 percent because it offers greater economies of scale and purchasing power, more efficient and streamlined processes, and access to advanced technology."
While many opportunities are present, Walker warns of some potential obstacles. "Few mid-market buyers have the luxury to maintain dedicated outsourcing groups. They would be well served to judiciously consider augmenting their own internal capabilities with external expertise," he says.
About the EquaTerra Perspective Paper and VentureForward Study
The findings discussed in the EquaTerra Perspective paper are based on an EquaTerra sponsored mid-market ITO trends study conducted by VentureForward, an independent research organization. The study was conducted in the first quarter of 2008 and surveyed more than 100 senior IT executives at companies with annual revenues between $500 million and $2 billion.
For additional insights on mid-market ITO trends, please download a free copy of EquaTerra's Perspective paper, The Issue: North American Mid-Market IT Outsourcing Trends, at www.equaterra.com/KR/research/North.
About EquaTerra
EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported over 2000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, Middle East, Africa and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. For more information, please contact LeeAnn Moore at +1 713.669.9292; leeann.moore@equaterra.com; www.equaterra.com.
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