Today’s IT Outsourcing – Emperor’s new clothes or the Real NEW Deal?

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Outsourcing of IT services (ITO has changed significantly over the past 5 years. Clients nowadays expect a very different set of services, delivered at an ever increasing pace and at constantly improved quality. This, combined with the challenging market conditions and the advent of ever accelerating technology advancements (ie ipad, cloud, devops etc) has changed […]

Outsourcing of IT services (ITO has changed significantly over the past 5 years. Clients nowadays expect a very different set of services, delivered at an ever increasing pace and at constantly improved quality.

This, combined with the challenging market conditions and the advent of ever accelerating technology advancements (ie ipad, cloud, devops etc) has changed the IT Outsourcing landscape.

This short blog will elaborate the main challenges, opportunities and impact from an IT Outsourcing point of view. 

1. Challenges and Change Drivers in IT Outsourcing
Outsourcing, as a way to enable organizations to reducing costs and focusing on core competencies, was introduced in the UK back in the 1970 and 1980. Cutting costs by reducing middle management and cutting red tape whilst delivering an improved citizen service, were the main drivers back then. During the 1980 and 1990 NHS (UK’s National Health Service) as well as local authorities were two public sector organizations that were increasingly consuming outsourcing services from external private companies. IT then mainly consisted of large Mainframe systems that were mainly delivered through in-house services.

Only with the introduction of PCs and more sophisticated network facilities external IT Vendors were able to offer IT capabilities to organizations. 1989 Kodak decided to outsource part of their Mainframe system and key Business Applications to IBM, DEC and BusinessLand. The then Kodak CIO Katherine Hudson was among the first IT executives to identify the opportunities an outsourcing arrangement could bring to an organization – focusing on core competencies and reducing costs.

Yet the Business Model of an outsourced arrangement has only slightly changed since the early 1990 – IT outsource contracts are usually long term arrangements that deliver a set of services in a defined manner and with strict SLA (service level agreements) and KPI’s (key performance indicators). This is in stark contrast to the changes the IT industry has seen over the past 10 years. Services that were not even thinkable 10 years ago are now standard practice. Open Source, ASP, virtual services like servers, storage, network and desktops are only a small number of examples. Apple’s ipod/ipad as well as facebook, twitter and yammer and enterprise enabled online business applications that can easily be meshed with other content providers have led to a new area of computing.

This, combined with a number of other challenges elaborated below, have led to a change in the IT Outsourcing sector – IT Vendors that focuses on Outsourcing started to also invest heavier in innovation, trying to understand the business models and services of their Client and many IT enabled Business transformation programmes are led by IT Outsourcing Teams – Outsourcing is moving away from being static, slow moving and inflexible to be flexible, agile and fast moving.

2 Key IT Outsourcing Challenges in detail
Of course there are a host of internal and external challenges for an IT Outsourcing Organizations, however for the purpose of this short blog I will only elaborate on a small number that I found to be fundamental.

2.2 How to establish the “right” relationship(s)?
…by avoiding an “us and them” mentality. But how to achieve this if IT Vendor does not “understand” his/her client and vice versa?

In some instances the IT Vendor might only have IT Outsourcing and delivery focused staff in the Service Team. Seldom are these fully Client sector aware. This could cause friction as business related concerns are not identified by the IT Outsourcer and Client can get increasingly frustrated by a lack of understanding. Conflicting expectations as well as potential service delivery issues during or right after service take one date, will accelerate Client’s perception that all issues are caused by the IT Outsourcer, defaulting to an “us and them” approach.

2.3 How to manage “disruptive” technology changes?
IT innovation and new development are ever increasing in speed and many IT Outsourcers are not set up to deal with technologies that could impact (positive or negative) the successful delivery of the core service. New technologies are not quickly enough embraced; causing frustration by Clients who believe the latest and greatest technology must be adopted as soon as a beta version is available. Not having a strong enough relationship with the Client, and missing the right skills sets will cause frustration on both fronts – IT Outsourcers will want to focus on a successful delivery of the current technology set and the Client cannot understand why a beta version of the latest freeware tool cannot be deployed in a couple of days.

To address these challenges an IT Outsourcing Organizations has to embrace the following points

  1. Ensuring that the Bid Teams, Contractual Teams and the actual IT Service Delivery Team are working hand in hand. This will ensure that expectations are being met right from the start and that key Bid themes do find their way into the contract.
  2. Ensuring that Innovation is at the heart of the IT Service. Only if innovation is being included in all phases of delivery will it provide a positive impact for both IT Vendor and Client. This is easier said than done as it requires the right skills and processes being part of the outsourcing arrangement (both IT vendor internal and external).
  3. Ensuring that the right skills are available. IT Outsourcing even 5 years ago was seen as a capability that delivers services in a fairly ridged way. An IT Outsourcing organization would have employed Service Delivery Managers, Technical Project Managers, Commercial Managers and Technical Experts. Due to the challenges outlined above IT Outsourcing organizations increasingly employ Business Transformation Consultants, Business Change Programme and Project Managers, Enterprise Architects as well as business focused outsourcing specialists
  4. Working with the Client creating a shared plan of change. This is key to establishing a coherent and consistent approach for both IT Outsourcer and Client. Only if both work hand in hand will both understand what is important and what is not. What changes are optional and which ones are essential, ensuring that the correct priorities are set.
  5. Shared Objectives and Targets Client have to allow IT Outsourcing organizations to make a profit and IT Outsourcing organizations have to understand what targets and objectives their Client organizations are measured against. This will help both to understand what is important and why their counterpart behaves in a certain way.

4 The Change in IT Outsourcing
Change is a constant factor in the IT industry. IT Consultancy and Technology focused organizations are always on the lookout for new offerings and new products; scanning the technology and business landscape for new innovations and actively supporting the creation of new business opportunities. This meant that IT Consultancy and Technology focused organizations had to gain a deep understanding of cutting edge technologies as well as a full appreciation of the business models of their target Client communities.

IT Outsourcing Organizations, on the other hand, focused very much on delivering fairly constant infrastructure related IT services, like running a Data Centre, providing network services, running a 1st and 2nd line Support Desk and the related ITIL (Information Technology Infrastructure Library) services

This separation between Consultancy, Technology and Outsourcing worked pretty well for a while, however as infrastructure services deliver more and more direct business value – like Cloud based services and/or DevOps – and Client demand better value for money, faster change cycles and a improved productivity, IT Outsourcing Organizations had to move more into areas traditionally reserved for Technology or even Consultancy related Organizations

Next to the standard Outsourcing portfolio an IT Outsourcing Organizations has to also:

  1. Understand the Business landscape
    IT Outsourcing Organizations cannot stay oblivious to the detail business models and the resulting business processes in the different business sectors (retail, manufacturing, health, banking etc). They have to fully understand and appreciate not just what their Client do but also how. Traditionally a field occupied by Consulting Organizations, however increasingly IT Outsourcing Organizations are employing business specialists and creating offerings in that space.
  2. Execute Business and Technology Strategy
    Again a field that was reserved for Consultancy and Technology Organizations, IT Outsourcers are starting to lead and not just follow a Business and/or Technology Strategy piece of work. This has forced IT Outsourcers to be much more observant of the IT industry as a whole – following and sometimes even shaping new cutting edge technology as well as business processes and models.
  3. Deal with Enterprise Architecture
    This is a very important area – having defined the overall Strategy from a Business and IT perspective, Client need a detailed plan to execute this strategy. This is to understand where the Business and IT currently is, what the main challenges and objectives are and what the short, medium and long term stages are. IT Outsourcing Organizations only really focused in the short and sometimes the medium term stages. However more and more they are also driving the long term definitions not just for the IT but also the Business areas.
  4. Employ Enterprise Portfolio Management
    Whilst it is essential to have intimate knowledge and understanding of the current landscape to plan for and define what the future should look like, it is of fundamental importance to focus on developing architecture content that addresses the strategic business and IT change agendas and presents a realisable vision of what the future business and IT landscape will look like. Accurate planning from both content but also from a commercial aspect is needed to drive out the plan incl dependencies and migration activities.
  5. Run large Business and Technology Transformation Programmes
    IT Outsourcing Organizations have been able to lead and drive technical change programmes; business change elements and the overall programme management was either lead by the Client of by a Consulting/Technology focused Organization. Not so anymore. More and more IT Outsourcing Organizations step into running large Business and Technology Transformation Programmes.
  6. Have the right proactive and collaborative approach to achieving shared goals and objectives
    Not so much an “identifiable capability” or offering, but “a state of mind”. This includes “seeing the bigger picture” and helping Client, even if that risks short term revenue. Examples are moving from dedicated storage to utility based storage, or deploying BPO type capability. These can erode top and bottom line; however, will inevitably contribute to Client objectives and what is good for Client is good for the vendor. Of course this requires the right relationship where Client and vendor work hand in hand together.

5 Summary
IT Outsourcing Organizations have to fully embrace these capabilities; knowing about them is not enough anymore. Client expect Outsourcing Organizations to understand what their current challenges and objectives are, where they are heading to and how IT can support this journey to enable / open new opportunities.

The result is a change in the IT landscape – it is (and quite rightly so) difficult now to differentiate between an IT Consultancy, Technology and Outsourcing Organization; the boundaries are blurred as technology advances and Client demand increases.

Thanks for reading!

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