McKinsey Report: A Fresh Wind for OffshoringVivek Pandit & Rajesh Srinivasaraghavan
While other offshoring services have grown rapidly, the management and maintenance of core infrastructure from afar has been slow to gain popularity. Only a sliver about 7 percent of the addressable market is being captured. But our research suggests that this is about to change. Shifts in customer attitudes and economics could trigger rapid growth for these services, known in the industry as remote infrastructure management
Businesses have begun tapping offshore companies to monitor, maintain, and fix their IT infrastructures. Revenues from remote infrastructure management, as these services are called, have grown by 80 percent a year since 2005 and are expected to reach $6 billion to $7 billion this year. But our research shows that the possibilities for managing servers and other IT hardware from afar are largely untapped.
Changes in the business environment could let loose a sudden rush to adopt this approach. While customers have enthusiastically offshored application development and business processes, remote infrastructure management has languished by comparison. Our estimates suggest that at the end of 2007, such revenues accounted for less than 7 percent of an addressable market of $96 billion to $104 billion, despite a steady increase in recent years. But within half a decade, those revenues could grow fourfold, reaching $26 billion to $28 billion annually.
The benefits of remote infrastructure management can be considerable — Fortune 50 companies, with budgets of $2 billion, can save as much as $500 million of their IT infrastructure budgets, mostly from labor savings. Yet there are also risks. Disruptions in core IT systems during the transition or ongoing operations have real financial and security costs, including possible data loss and the interruption of operations. Other concerns include regulatory problems, such as the possibility of giving third parties inadvertent access to confidential medical records, and of financial fraud or intellectual-property (IP) theft when vendors gain full access to corporate systems.
Nonetheless, a change in customer attitudes confirms the growth potential. We surveyed 141 CIOs at multinational corporations in 2007, and 34 percent of them say they expect to offshore some infrastructure services over the next three years—a sharp increase from 19 percent in a similar survey a year earlier. The responses suggest that the growth will encompass a broad swath of remote-management opportunities, including storage, help-desk, server, and network services.
About AuthorVivek Pandit is a principal and Rajesh Srinivasaraghavan is a consultant in McKinsey’s Mumbai office.
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