IDC reveals fastest growth for IT outsourcing services

EDP Weekly's IT Monitor, Dec 8, 2003

The market opportunity for IT outsourcing services can differ significantly depending on the vertical industry, a new report from IDC reveals. The new report, which presents the five-year forecast for the U.S. IT outsourcing market within 16 vertical markets, indicates a range in the compound annual growth rate (CAGR) from 3.5% in communications/media and education to 7.4% in government.

While some verticals have been more severely impacted by the downturn in the economy, other industries have continued to spend on technology and related IT outsourcing. IDC's research shows that the largest U.S. consumers of IT outsourcing are discrete manufacturers and the government. In terms of the fastest-growing markets over the five-year forecast period, some of the better opportunities will be with the government, financial markets, services, and discrete manufacturing industries.

"For the most part, outsourcing does not need to be 'verticalized,'" said David Tapper, program manager for IDC's IT Outsourcing and Utility Services research. "We tend to think about the need to verticalize an outsourcing offering as following an 80/20 rule--about 80% of an outsourcing offering is applicable to all vertical markets and about 20% needs to be modified for the specific needs of an industry."

Key findings presented in this report include the following:

* Service level agreements (SLAs) around security and high availability are two components of the IT outsourcing contract that often need to be adjusted to match the industry's sensitivity to uptime and security of information.

* The scope of the outsourcing contract can vary by industry according to the type of IT infrastructure the industry has in place and what the industry is seeking to outsource. For example, outsourcing mobile devices is more important to the healthcare and auto industries than it is to the professional services or financial services industries.

* Industries that are likely to outsource include those industries with low margins, poor access to IT talent, or a need to access the latest IT technology.

* On-demand services are displacing traditional IT outsourcing contracts. A separate vertical assessment needs to be made for on-demand outsourcing services as the vertical market drivers for on-demand services vary from those of traditional IT outsourcing contracts.

IDC remains optimistic about the IT outsourcing marketplace, particularly after 2003. To leverage market opportunities, IDC believes IT outsourcers should develop service contracts that can support customers' needs to meet changing business requirements. In addition, as part of an outsourced offering, IT outsourcers need to provide offshore capabilities to ensure that they can cut costs and meet customer requirements. However, outsourcers need to align their offshore strategies with regulatory considerations and customer sensitivities to offshore preferences.

This study, U.S. IT Outsourcing Forecast and Analysis by Vertical Market, 2003-2007, (IDC #30269) presents the five-year forecast for the U.S. IT outsourcing market within 16 vertical markets. The purpose of this study is to identify recent trends that are influencing the IT outsourcing opportunities within vertical industries thus far in 2003 and discuss their impact on the five-year forecast period.