Cautious Optimism For '08
"From about 2001 until pretty recently, IT departments were being told 'No' to all sorts of different projects," said Trevor Mather, CEO of ThoughtWorks, a $130 million global consultancy. "Well, you can only say no for so long."
That's why, in Mather's view, there is a large backlog of IT projects that just now are getting pushed to the fore. Case in point: Cognizant (VARBusiness 500 No. 49) recently conducted a survey to assess clients' budget plans and spending priorities for 2008.
More than 150 senior decision-makers responded to the survey, representing a cross-section of clients in banking, financial services and insurance, health care and life sciences, retail and manufacturing, and telecommunications vertical businesses. Ninety-two percent of Cognizant's customers said they do not expect their overall IT budgets to decline going into 2008.
But with companies saying they have the money to spend on IT, some old foes have returned.
"Financial firms and companies in general are finding it so difficult to find resources, to find good personnel; the supply of resources in the West is down," said Mather.
In response, some have turned to outsourcing firms, such as Cognizant and Tata Consultancy Services (VARBusiness 500 No. 32).
"We have felt no impact of the subprime issues, or an overall slowdown across the banking sector. Where we see good demand is in midtier banks, asset managers, and continued strong demand for new technology and services that help them compete,"said Terence Donnelly, vice president and general manager, North America, TCS Financial Solutions.
All that growth has a flip side, particularly for smaller outsourcing firms, Mather noted. "Services companies are full. Vendors are prioritizing their customers. Many firms have got nowhere to go, and Indian companies have experienced a combination of churn and bad press, so some companies won't risk outsourcing projects overseas," he said.
Companies must also contend with older equipment and technology that they must update in order to remain competitive. The way in which that is accomplished can be the difference in being around in five years, Mather said.
"A lot of financial companies in particular are moving from older, legacy systems to better, newer technology. On the back of that, what happens is that revenue-generated projects are not getting done," he said. "The biggest mistake is to replace legacy systems leg for leg and build on top of those. There are different ways to keep legacy going while simultaneously replacing pieces of it. You need to build in parallel, shutting off bits of the legacy system at a time. So many are trying to replace with Indian companies, but what often comes back is the same stuff on newer code. And then they can't put new stuff on that, because it's too much of a risk."
But for large, mature outsourcing firms, such as Tata, the reality is that business is booming. Companies can't put their best people on both legacy replacement and revenue-generating projects. Because there is a shortage of qualified IT workers, such firms also can't hire enough people for the burgeoning workload.
Last, compliance issues consume time and resources for financial institutions--and they are mandatory.
"Businesses have to do the regulatory stuff. But Accenture, EDS, those big firms have huge armies of people that focus on regulatory. Don't take your best resources and put them on that. Outsource to those guys. Use their experts and skills, don't tie your people up with that," said Mather.