August 3, 2011 – Information technology outsourcing in the utilities sector is on the rise as the industry seeks cost savings, according to new research from Ovum. The independent technology analyst firm says the recent spike in IT outsourcing contracts by utilities in Europe and North America indicates steady growth over the next 12 months. As the industry faces unprecedented pressure to cut costs, Ovum finds that many utilities are realizing that they can no longer afford to ignore outsourcing.
Ovum’s reports are based on ongoing research into growth predictions based on macroeconomic factors and business trends. According to the study, many utilities companies will turn to third-party IT services providers to take over infrastructure, application maintenance and development and back-office activities.
Utilities industries have depended on IT for a long time to make the business run, but the preference has been to keep it in house due to specialized industry regulations. However, new technologies are allowing companies to outsource and not compromise on security and regulations, according to Ovum.
“What’s happening to utilities is not unique – companies across verticals are facing similar pressures,” says John Madden, senior analyst, Ovum Services. “All industries are looking where they can save in IT in order to invest into their core business.”
Madden points out that a lot of companies are looking to take advantage of cloud, mobility and enhanced security. These companies previously may not have considered outsourcing and are now taking a second look In some cases to take advantage of new technologies and in others to achieve better operational efficiency and cost efficiency.
Looking at the pressures in the industry, Ovum says the reasons for utilities to look at outsourcing include mergers, regulations, support and demand for smart technology.
M&A activity has created a disruptive environment in the space. Ovum says to achieve costs savings and scale, companies are more often looking at using third-party outsourcers. Cutting IT expense through outsourcing can generate more money to spend on regulation, the environment and infrastructure.
Additionally, the push is on for smart meters and smart grids, which allow power to be flowed at exactly the right levels. Utilities have expertise in house for deploying, but sometimes they need help from outsourced firms, according to Ovum.
Ovum recommends that services providers continue to make investments in skills, portfolios to meet demand for IT services in utilities.
“When you look across the vendors active in the space – most if not all have done work highlighting the portfolio in the areas of customer care, corporate operations, energy generation and delivery,” says Madden.
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