Outsourcing shifts towards app development, BPO

When it comes to outsourcing part of the business, traditional areas like IT infrastructure remain constant, but a recent report suggests the areas of application development and maintenance (ADM), and business process optimization (BPO) are playing a larger role.

The report, State of Canadian Outsourcing, was released Thursday by the Toronto-based Centre for Outsourcing Research & Education (CORE), which examines the outsourcing market in Canada over a period of five and a half years ending last June.

The trend reflects a recognition among companies of the success of traditional IT infrastructure outsourcing, and a willingness to extend that success to other areas of the business, said John Simke, chairman of the board of directors at CORE.

“Application outsourcing is becoming a bigger part of the market compared to IT infrastructure outsourcing,” he said, adding that BPO and ADM require specialized skills that are hard to find.

According to the report, there has been more than $50 billion worth of IT infrastructure and BPO outsourcing performed in Canada during the analysis period.

The report findings are based in part on analysis by an independent research firm of publicly-announced outsourcing deals and outsourcing providers; and research studies based on interviews of service providers, customers and independent advisors like law and consulting firms.

As for the industries that typically outsource parts of their business, Simke said financial services is “far and away” the largest adopter. Following suit is telecommunications, government/not-for-profit, and energy/utilities.

Financial services ranks the highest, he said, because not only do banks have a longer history of outsourcing, but they also have standardized processes across institutions, a setup which makes outsourcing more amenable.

In keeping with the report’s findings, Simke said the “major players” in the adoption of outsourcing include CIBC, Bell Canada, Scotia Bank, and Hydro One.

The areas within the company that have been traditionally outsourced, like payroll, are now joined by human resources, financial and accounting, and call centre services.

But companies’ approach to outsourcing has also undergone change, in that outsourcing used to be viewed as a tactical tool to achieve a narrow business objective, said Simke. “But they’re seeing outsourcing more broadly, as a tool across the organization to deal with issues affecting businesses quite significantly, mainly access to talent and human capacity.”

While companies’ perspectives have broadened, so has their ability to manage the outsourcing process. Service providers used to “call the shots”, according to Simke, but now customers have built an “internal capacity” around outsourcing.

The boosted confidence coupled with the internal resources means companies are increasingly able to manage the integration of, and get the most value from, multiple providers, said Simke.

Part of the capability stems from “very strong stay back teams,” a portion of the outsourced department that stays onsite with the company in order to manage the client-provider relationship. Team members require specialized skills like governance, dispute resolution, and relationship management, said Simke. “Those are very tricky things in an outsourcing deal.”

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