Luxoft, Russia’s largest provider of high-end IT outsourcing services and product development to clients such as Deutsche Bank, IBM, UBS, T-Mobile and Ping Identity, today issued its annual predictions for the IT outsourcing industry in 2008. These predictions cover a range of technical, business and relationship issues demonstrating the increasing maturity of the global IT outsourcing market. Top areas to watch include:
Transformational outsourcing will drive true innovation
In 2007 as the outsourcing market continued to mature, many companies realised that outsourcing can bring value far beyond simple cost savings and tactical software development. The issue for some clients was obtaining the level of innovation they were seeking from vendors.
In 2008 Transformational Outsourcing – leveraging vendor knowledge and expertise to reinvent client business processes – will gain more traction. Here clients require vendors with an in-depth grasp of their industry to support and create mission-critical business processes, manage change and think beyond the initial brief.
Managing and measuring agile comes next
In 2007 agile software developments started to take root in outsourcing engagements. Agile software development is the developing of software in shorter iterations and in a much more collaborative fashion.
In 2008 agile development adoption will continue apace. However, as in-house teams start to truly understand this approach, they will also need to determine how to effectively manage and measure the success of their efforts. It will be critical to secure vendors that have already mastered agile to fuel this next step.
Eastern Europe & Canada provide hot destinations
In 2007 as nearshoring developed in popularity, Eastern Europe and Canada began to pick up steam as outsourcing destinations particularly for European and North American companies as well as US multinationals.
The Eastern European software industry grew by 12.53 percent in 2006 and is estimated to grow at a CAGR of 10.87 percent until 2008. The Ukraine is an especially promising spot with its offshore outsourcing market growing 47 percent in 2006 and 30,000 IT graduates joining the workforce each year.
In 2008 these two regions – known for technical excellence, innovation and solid business practices – will continue to gain prominence.
Strong European client demand continues
In 2007 European customers, particularly in the financial services and banking sectors, had a strong appetite for outsourcing. In fact, demand for outsourcing in Europe increased dramatically in the first half of 2007, rising as high as 78 percent compared to the first half of 2006. This increase meant that Europe accounted for 54 percent of new outsourcing contracts worldwide, compared to 32 percent last year and 38 percent on average for the last five years.
This strong growth will continue in 2008 with U.K. and German clients being the most active seekers of outsourcing services delivered via a nearshore, Eastern European model.
Embedded Development and product engineering take outsourcing deeper
Over the past year, clients in the automotive, industrial, electronics and telecommunications equipment industries have been increasingly seeking outsourced talent to assist their in-house embedded development teams. This trend will continue in the coming year with vendors needing to possess proven skills in working with human-machine interfaces and hardware communication protocols in order to provide successful embedded development support.
In addition, some outsourcing vendors are beginning to provide ground-up software product development and engineering support for offerings that will be packaged and marketed by their independent software vendor clients. This will develop in 2008 as transformational and innovative outsourcing grows, agile development will also be a major factor in increasing time-to-market.
Software testing grows in scope
Software performance and product testing, once almost exclusively done by in-house teams, has started making its way onto the outsourcing scene over the past few years.
In 2008 the scope will broaden beyond traditional functional and system integration testing to encompass overall system performance, scalability, usability and security testing bringing higher value to the client’s organisation. This will require new outsourcing services to be offered in the market in the areas of system performance engineering, test automation and regression testing efficiency.
Country-to-country collaboration creates strange bedfellows
In 2007 many new kinds of outsourcing resource models developed including vendors setting up shop in other countries to tap into resources in a continually tightening talent market.
In 2008 we’ll see this taken a step further with vendors in highly competitive outsourcing countries teaming up or even forging vendor/client relationships. This could, for example, bring Russia and India or China together in new and interesting ways.
Global delivery and nearshoring both in high demand
2007 was the year of the nearshoring buzz as clients wanted the combined benefits of proximity and familiarity as well as the manpower boost of outsourced resources.
In 2008, nearshoring will continue to play an important role but clients will increasingly widen their scope demanding that their key vendors have strong outposts around the world that can handle global delivery. Established and well-staffed vendor locations in North America and Eastern Europe will be vital.
Security becomes paramount as relationships evolve to partnerships
In 2007, as some outsourcing vendor/client relationships evolved into innovation partnerships, tight security planning and policy execution became even more pressing.
In 2008, with greater depths of data potentially being shared through transformational outsourcing, embedded development and product engineering programmes, security practices will need to become a more natural and proactive part of any successful engagement. Security planning and procedures must also span across all forms including systems, data, IP, physical, and staffing and should also include disaster recovery blueprints.
Russian Outsourcing Continues To See Record Growth
In 2007 Russia was increasingly recognised by the industry, influencers and clients, as a world-class outsourcing destination, particularly in its ability to tackle high-end, complex development and business process challenges. This recognition showed in the market growth of Russian outsourcing to over $1B in 2006-2007 as well as 40 percent year-onr-year growth since 2003.
Strong continued expansion is expected into 2008 and beyond.
About Luxoft
Luxoft, founded in 2000, is Russia’s largest provider of high-end IT outsourcing services with operations in the U.S., Canada, U.K., Ukraine and the world’s largest delivery capabilities in Russia and CIS.
Luxoft works with global enterprises and independent software vendors (ISVs), enjoying long-term relationships with industry leaders such as Deutsche Bank, IBM, UBS, T-Mobile and Dell.
Luxoft's software development processes meet the highest quality standards, and the company was the first in Europe to achieve Level 5 CMMI quality certification. Luxoft runs research and development centres in Moscow, St. Petersburg, Dubna and Omsk in Russia, as well as centres in Kiev, Dnepropetrovsk, and Odessa, Ukraine, and Vancouver, Canada.
Luxoft is the recipient of the 2007 Frost & Sullivan Global Outsourcing Growth Excellence & Customer Value Leadership Award; its long-term client Deutsche Bank recently won an Applied Innovation Award from the IAOP, Wipro, the ITAA and Forbes for a CRM system jointly developed with Luxoft.
