ISG Americas Identifies Six Strategic Sourcing, Operational and Market Trends for 2014

Profit margins increasingly trump deal size and transparency becomes essential; metrics discipline applied to cloud contracts; healthcare sector transforms itself through IT; engineering services outsourcing sector poised for major growth

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Information Services Group (ISG)

Dec 18, 2013, 03:00 ET

STAMFORD, Conn., Dec. 18, 2013 /PRNewswire/ -- Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, today identified six key trends that will define the sourcing and operational agendas of enterprises in 2014.

"In 2014 we anticipate continued fundamental change in how sourcing contracts are structured and managed," said David Whitmore, Vice Chairman, ISG, and President, ISG Americas. "This includes an increasing emphasis on cost transparency and service integration, as well as measurement and discipline in the management and deployment of cloud services. We also expect significant growth in several key market sectors, as well as continued specialization along industry lines."

The views summarized below are based on a recent survey of ISG sourcing experts and industry specialists.

Margin trumps revenue: The "my mess for less" outsourcing model will continue to give way to a collaborative approach, whereby clients are becoming more willing to adopt the standard processes offered by service providers. Service providers are embracing the concept, as it gives them greater control to drive economies of scale across multiple clients. As a result, the business imperative will continue to shift from maximizing deal size to increasing profit margin. This dynamic will intensify in 2014, as Social Media, Mobility, Analytics and Cloud (SMAC) technologies and automation become more widely adopted and as operational transformation increasingly becomes the rule, rather than the exception.

Cost transparency becomes paramount: A key priority for enterprises in 2014 will be to gain transparency into IT costs and how those costs map to service delivery, consumption of IT resources and business outcomes. Businesses seeking to transform their operations are recognizing that aligning IT finances and IT operations provides critical insight into total cost of ownership of IT – insight that is essential to identifying and evaluating alternative options at the front end of transformational initiatives, and to successfully implementing end-to-end service delivery models.

Service Integration matures: Following a period of experimentation with various outsourced models, client organizations will increasingly focus on Service Integration as a core competency and take key functions back in-house. Having a solid internal service integration capability will provide the flexibility to onboard new and specialty service providers. Relatedly, clients will place greater emphasis on mechanisms such as governance forums and provider workshops to facilitate collaboration across provider teams as well as ensure effective management and integration of changes in service provision.

Measurement discipline for cloud computing: To date "cloud" services haven't been readily approached with quantitative discipline and analytical rigor, and businesses have struggled to effectively manage cloud-based services. In 2014, ISG expects clients and service providers to further define their strategic objectives for cloud services, applying consistent metrics to quantify their return on investment and navigate a rapidly evolving contracting environment. One key will be progress towards normalized measurement frameworks that enable meaningful comparisons of alternative solutions. Clients will increasingly leverage standards such as the Cloud Services Measurement Initiative Consortium (CSMIC) Service Measurement Index to assist with this process of normalization and evaluation.

Engineering services expand: The Engineering Services Outsourcing (ESO) market has witnessed substantial growth in recent decades, and is poised for continued expansion. During 2014, ISG anticipates a continued shift in proportional spend towards emerging markets, as well as a reassessment of client strategies towards captive operations. As service provider capabilities expand, client pricing and contractual relationships will rapidly shift from traditional rate-based structures of staff augmentation and time and materials to more risk/reward structured agreements of fixed prices, services-based agreements and client metric based risk/reward relationships. The result: clients will have more favorable and value-adding pricing options to consider when evaluating service providers.

Healthcare addresses Affordable Care Act (ACA) opportunity: Operationally, 2014 will see payers and providers responding to legislative incentives to implement more streamlined, coordinated and efficient delivery of care. The transition from the fee-for-services model to bundled payments will create opportunities to expand outcome-based, end-to-end service management models across treatments, supply chains and service chains. Implementation of these models will expose duplication and complexity, which will increase consolidation and mergers and acquisition activity. Optimizing consolidated operations, in turn, will present a new set of transformational challenges and opportunities.

About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries.

For additional information, visit www.isg-one.com.

SOURCE Information Services Group (ISG)