Research is indicating major trends in the world of IT outsourcing for the dynamic UK mid-market – trends which we believe will continue to evolve and embed in 2013.
The first big headline is the mid-market’s focus on GROWTH. In a recent poll of 1300 mid-market companies, over half of respondents claimed growth was a major strategic target for their Boards in 2013 with 28% forecasting growth of over 20%: in deep contrast to the macro economy. While growth is fundamental in this market, business leaders are approaching this with prudence. Few saw new product development or M&A as their route to growth. Instead, growth is focussed on selling more of existing products and services to new markets, with twice as much focus upon international than domestic markets.
So who are these businesses? The mid-market is said to be notoriously difficult to define but in very broad terms can be locked down as between 50-2000 employees, although this measure is very much dependent upon the sector. We believe it is much better to understand the mid-market through its attitudes toward its own marketplaces, rather than purely upon size and this has served us well since our own MBO in 2006.
The second theme to emerge is an increasing pace toward ALIGNED STRATEGIC outsourcing. In the last 36 months, we have witnessed a major uptake of strategic outsourcing in the mid-market. Once only the preserve of enterprise outsourcing, in recent years we have seen a four-fold increase in enquiries for major strategic initiatives in which the business technology outsourcing strategy is directly linked to measureable business outcomes. Expectations are changing; IT outsource suppliers need to shape up. Gone are the days when the mid-market was willing to accept a transactional type relationship, dominated by SLA type measures. Today’s mid-market leaders are expecting their IT functions to add demonstrable value to their growth strategies.
Forecasts for FY13 show this trend toward strategic outsourcing is continuing. Two indicators from our survey support this notion. Firstly only 15% of Boardrooms saw IT as a ‘support’ function whilst 80% of respondents regarded IT as a strategic business imperative. Secondly half of the companies surveyed revealed that IT was not represented at board level by a dedicated executive position. CFOs/FDs and CEOs themselves are increasingly shouldering this responsibility with little or no formal training in this field. The suggestion here is that by getting a business savvy leader to head up IT, it will become more aligned to business strategy. In other words IT has become a business issue, discussed at board level by a non-specialist and no longer regarded as just a support function.
The third theme for 2013 is OPERATIONAL EFFICIENCY. Improving operating efficiencies and reducing operating costs were the two most popular themes in our recent survey indicating a focus upon improving scale efficiencies. The dilemma for business leaders in the mid-market sector is how to grow a business and at the same time operate as leanly as possible. Our consultants suggest the key is in scalability, having predictable and measurable costs that can be forecast and planned for, with few surprises. Within this, however, there is another issue. Scalability is hard to achieve in a fast growing and constantly changing business and this is where outsourcing can assist.
This is all good news for the outsourced IT market although this term is, in itself, now becoming outdated. Business leaders in the mid-market are demanding aligned business technology, with a relentless focus upon supporting growth and business efficiencies.