Outsourced services to defy R-word: Gartner

Despite broad industry speculation that Australia is headed for a recession, Gartner Dataquest says that IT services in the Asia Pacific (AP) will continue to grow, particularly in the ASP market.

"The word floating around is recession," Craig Baty, Gartner Dataquest AP group vice president said at the Dataquest Predicts conference Monday.

Baty said vendors with a vested interest in creating recession hype in the IT market would have no impact on the business process outsourcing (BPO) market, predicting that most Australian organisations by 2005 will outsource a wide range of business management functions.

According to Baty, a combination of IT-intensive processes and none-core yet critical processes like accounting, human resources, supply chain management and facilities management, will push the regional BPO market to $7.66 billion this year (up from $2.375 billion in 2000). Australia will own about 30 per cent of this market which will be increasingly dominated by China, Taiwan and Korea.

Commenting on the primary decision-maker in BPO decisions, Baty said 75 per cent of CIOs in the region brokered the BPO deal, breaking what he called the urban myth that responsibility only fell under the business managers' gaze. In Korea 88 per cent of CIOs made BPO decisions, while in India 100 per cent of CIOs had this responsibity.

Also, BPO pushed 31 per cent of CIOs' hot buttons because of cost reduction opportunities.

"CIOs find they also save time, increase their management skills, improve customer service and quality of information, and increase efficiency through [BPO]," he said.

On the other hand, BPO proved unpopular for 26 per cent of CIOs who said outsourcing had cost them more than keeping it inhouse with 50 per cent claiming it was inefficient.

Baty attributed these results to confusion in the AP marketplace over the benefits of BPOs and scant knowledge of the large number of suppliers besides big-names like IBM GSA or Pricewaterhouse Coopers.

Providing a bird's-eye view of the regional IT services market, Dataquest AP regional director and principal analyst Ian Bertram, said executives had been so focused on economic doldrums around the world lately, that they had missed what he called the crux of the industry: growth itself.

"Australia has had a negative [last] financial quarter, which may impact some parts of IT, but in IT services - the things you can't kick like hardware or peripherals - the reality is, life goes on," he gibed.

While the IT services market was indeed slowing, he said it would reach $12 billion by the end of May 2001, up from $9.9 billion last year. He also predicted 30 per cent services growth to occur over the next five years.

Mega-deals and selective deals will become the fad over the next few years, according to Rolf Jester, Gartner AP's regional director for IT services.

By 2005, 30 per cent of deals, he said, will be mass-customised application contracts with ASPs, citing recent local deals such as Kaz Computer Service's infrastracture pact with Heinz Watties, and Unisys Payment Systems' cheque processing deal with Westpac as prime examples.

Jester said reservations over spending will drive services growth.

"Executives are faced with the dilemna of not wanting to spend [outright] on capital, so one of the options is to expense the capital and buy the service rather than buy the people to manage it inhouse," he said.

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