2009 is looking a lot like 2002 in the IT outsourcing industry. Back then clients were cutting back, driving economies of scale and consolidating vendors. Decision-making moved away from business and IT managers to purchasing teams. The difference back then was western IT companies – the incumbents - suffered as Indian outsourcing companies benefited and took ground.

In 2009, the Indian IT companies are the incumbents and clients are scrutinizing all vendors and contracts. Senior executives at IT outsourcing companies need to take action now to make sure they aren’t the losers when the consolidation decisions get made.

So, how should they prepare? Start by looking at what happened in 2002. Purchasing departments at large clients used two metrics to make vendor optimization decisions – cost and quality. Cost is easy to compare but what about quality? Back then the decision makers seized upon CMMI as the standard of quality and quite honestly the Indian IT industry was only too pleased, as all the large players had already been appraised at CMMI Level 5 – the highest level achievable. The companies that enjoyed success in 2002 were those judged, according to the CMMI, as having the highest quality processes. In 2009 this focus on quality will remain just as critical; however, there needs to be a shift in the measure of quality.

As the industry moves towards more high level tasks such as research and development and KPO (Knowledge Process Outsourcing) that put the focus on the qualifications and quality of the professionals doing the work. The quality of the talent and the workforce is the next key measure of quality. What I am seeing now is there is no measure of quality distinction offered by IT providers and therefore the only variable left is cost. In this scenario we run the risk of IT providers dropping pricing in order to survive. This will cause a long term earnings and investment gap in the industry. Dropping pricing today will take down long-term earnings and in order to minimize the impact to earnings, companies will reduce critical investments to remain competitive. There has to be a better way.

Benchmarking their talent to a global standard will be critical for organizations with a desire to become dominant in the industry.

At PAC we are working with leading companies do exactly this. Benchmark and certify their talent against a global population. The process is rigorous but highly rewarding. Beyond a marketing edge, companies get rare insight into their talent pool, training processes and the deployment of their staff. By sharing the insights with their clients they collectively make better talent optimization decisions. They are now working with their clients at a more strategic level and proving themselves as a high quality partner.

So, are you ready for 2009?