By Dr Roger Newman, head of UK Manufacturing and Digital Convergence Relationship Management at Mahindra Satyam

Recessions drive change and force companies and countries to be more aggressive in order to survive. Each recession is different in terms of cause and response but one thing for sure is that significant changes will occur .The first recession I lived through was back in the 1970’s. I started work in the year when the UK was working to a 3 day week due to the Oil shocks and rampant union activity. At the time a three day week seems like a pretty reasonable start to my working life! However the subsequent years witnessed a dramatic restructuring of the UK’s industrial and services base, one that equipped it to survive and prosper in an ever competitive global market.

The last economic decline in 2001/2002 was caused by overvalued online-based companies, leading to the infamous dotcom boom coming to an abrupt end. As a result, businesses started to offshore IT services to lower-cost destinations to cut costs. This gave real impetus to the Offshoring boom. According to a recent report by analyst house Gartner ‘Gartner on Outsourcing’, today’s economic crisis could drive a similar trend in the way IT services are delivered. There is no doubting that this current economic downturn has driven new ways of providing and pricing IT outsourcing much like the bursting of the dotcom bubble increased the take-up of offshore services.

Although some cautious organisations remain wary of outsourcing following this recession, strong evidence suggests that companies that invest in outsourcing now will benefit when the market finally beings to pick up. For example, businesses will be able to use IT and business processing outsourcing as transformational catalysts to address operational issues and most importantly, cut costs. Additionally, their retained professionals will improve their focus on core business, i.e., strategic, issues. Furthermore, for organisation’s still feeling the after effects of the global economic slump, outsourcing can still help improve the balance sheet; raise cash by selling existing assets and operations to suppliers, and eliminate many operational costs.

So what will be the main changes driven by the current recession? My belief is that the current recession will just accelerate some trends that were already present i.e.

a) Pricing based on outcomes with a trend towards companies outsourcing the compete process, not just the underlying IT.

b) Consolidation of suppliers. Companies will shrink the number of suppliers they have providing the survivors with a bigger share of the budget in return for aggressive outcome based pricing.

c) As a result of the above we will see a reduction in the number of IT service providers. There will be a consolidation into a few large companies who can provide the full range of IT services and some smaller providers of niche technologies or Industry specific solutions.