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Midsize IT outsourcing providers offer hidden value

Stephanie Overby | Sept. 23, 2013
There's a growing shift from tier 1 offshore outsourcing providers to midsize IT services players. Scale and price are no longer the sole interest of outsourcing customers. They are seeking agility, flexibility, vertical alignment, responsiveness and trust -- all of which they are more likely to find in a smaller, more focused provider.

In addition, mid-market providers are better at attracting and retaining talent with attrition levels, particularly at higher levels within the management and technical delivery teams, well below 10 percent, according to Iyengar, compared to the industry average of 14 to 17 percent. Large vendors have a reputation as a good place to start and IT career, but not a great place to advance.

"As an IT professional grows in their career, he or she looks for challenges in the form of work on cutting edge technologies, client-facing roles, and novel delivery models," says Iyengar. "It is also easier for talented people to get noticed faster in a smaller vendor organization than at a larger one, hence career progression is faster." Smaller vendors tend to invest more in continuous training and development, Iyengar says, which leads to less job-hopping.

The Risk of Midsize IT Outsourcing Providers
The biggest risk with a smaller vendor, however, is staying power. "[They] are potential acquisition targets," says Iyengar. [And] sometimes they don't have the deep pockets needed to weather financial crises which may cause delivery issues." The best way to mitigate those potential problems is to have clear visibility on the vendor's financials and to put in place a contingency plan for all possibilities.

Despite those challenges, mid-market providers are thriving today, says Iyengar. "Most of the midsized vendors saw above industry average growth in their revenues and margins, while the larger vendor set was floundering during the financial crises," Iyengar says. "Their major challenge is the lack of brand visibility in key markets, which is a hindrance in their growth.


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