Outsourcers play on vertical strengths
Published: 22 Jul 2003 10:04 BST
Companies that offer information-technology outsourcing services are increasingly emphasising vertical markets, according to an IDC report released Monday.
According to the research firm, the push by outsourcing providers to address vertical markets, such as financial services and manufacturing, is primarily a marketing tool. However, IDC analyst David Tapper said the vertical strategy is growing in popularity.
While Tapper estimates 80 percent of any outsourcing project remains the same regardless of industry, he said recognition of vertical-markets expertise, such as dealing with a specific business process or industry regulation, is helping service providers win deals.
"A lot of outsourcing has nothing to do with what industry you're in -- there is no vertical aspect to turning on the lights or maintaining servers," Tapper said. "But it is getting tougher for outsourcing companies to differentiate, and this is one strategy that appears to be working."
IDC compared the revenue of outsourcing-services vendors across six major vertical markets: financial services, manufacturing, retail/wholesale, energy/utilities, government/education and health care.
IBM dominated the rankings, showing up as a leader in four of the six markets (financial services, manufacturing, retail and health care) and as a runner-up in one other sector (government). EDS was a close second, sharing top billing with IBM in three industries (manufacturing, retail and health care). The wildcard market was energy, where Computer Sciences was identified by IDC as the leader, with SAIC following close behind. Computer Sciences also leads the government market, according to the report.
Bill Schaefer, a vice president in IBM's business transformation outsourcing group, said customers are increasingly approaching his company looking for vertical industry expertise. On Monday, IBM announced outsourcing deals with two new customers, Ericsson and Raytheon, with both firms tapping heavily into the company's "industry-focused groups," Schaefer said.
IBM officials recognise that a good deal of the company's vertical markets' knowledge came through its acquisition of the consulting-services arm of Price Waterhouse last year.
"You must have the ability to speak a customer's language," Schaefer said. "It's true that 80 percent of an outsourcing agreement might be the same from industry to industry, but it's that 20 percent of fine-tuning that helps set a customer at ease."
Schaefer pointed to financial services as one area where users are particularly concerned that their outsourcing provider understands regulations and policies before handing over critical operations management.
According to IDC's Tapper, IBM and EDS play well in the market for vertical outsourcing because they have the economies of scale not only to deliver on the physical aspects of outsourcing -- keeping infrastructure up and running -- but also on the human end of the spectrum -- dealing with concerned executives and IT managers. Another advantage for the two firms is their emerging presence in offshore outsourcing, which helps drive down end-user costs.
However, the real key, said Tapper, is that EDS and IBM have a "technology agnostic" approach to outsourcing.
"Hewlett-Packard is a technology company trying to drive outsourcing services, which doesn't work as well," Tapper said. "IBM is truly an anomaly in that it approaches services without putting its technology business first; they're as independent as any non-affiliated provider."
Tapper said this ability to provide different kinds of IT systems management is what makes EDS and IBM market leaders. Having the size and scale to assume the many risks involved in outsourcing is another reason the industry behemoths win so many deals, he said.
Tapper said knowledge of industry specifics is especially important during the initial phase of IT outsourcing, the assessing and design stage, for this is when outsourcing users are most concerned with issues related to industry regulations and customer behaviour.
Let the editors know what you think in the Mailroom.
Did you find this article useful?
54 out of 105 people found this useful
Digg
Slashdot
Del.ici.ous
Stumble
Reddit
