Is Integration-as-a-Service the IT Model of the Future?

Shaun Daly, partner with outsourcing consultancy Sourcing Advisory Services, discusses how the third-party managed sourcing model–which he calls multi-sourcing Integration-as-a-Service–is poised to accelerate as the enterprise IT model of the future. He further explains what might drive adoption to this model as well as the pros and cons involved.

There’s little doubt that multi-sourcing has become the dominant model for enterprise IT services. The average U.S. IT shop is working with 13.5 service providers overall, according to Gartner. But managing multiple providers remains a challenge for most IT organizations.
Some IT organizations, like the State of Texas Department of Information Resources, have decided to outsource the multi-sourcing management to an external master service integrator.

The idea was met with warranted fox-guarding-the-henhouse concerns by many industry watchers. But Shaun Daly, partner with outsourcing consultancy Sourcing Advisory Services, says adoption of the third-party managed sourcing model–which he calls multi-sourcing Integration-as-a-Service–is poised to accelerate. talked to Daly about what might drive adoption of multi-sourcing integration services, the pros and cons of the model, and what it means GM is getting out of the multi-sourcing management game.

Doesn’t engaging a third party to manage the IT service portfolio just add another layer of complexity to the arrangement?

The challenge for determining scope of what should be sourced or retained internally remains the same for multi-sourcing service integration. The question remains: who is best positioned to treat it as a core competency and, therefore, should be better positioned long-term to provide this service.

Our experience has shown that a select group of the suppliers have developed a best-in-class approach to ensure the enterprise receives a more flexible and healthy service. We’ve seen that elevating service integration as a discrete service delivery function actually addresses and increases value accretion by exposing the complexity, the misalignments, the overlaps and the gaps.

Historically, in a single- or multi-sourced environment, the real complexities are papered over. But “your mess for less” is an unacceptable answer for modern competitive firms. A coordinated service integration solution is necessary to realize the full benefits of best-of-breed multisourcing. Eliminating duplication and making processes consistent and repeatable are the keys to performance management.

Are some IT organizations capable of managing a multi-sourced environment themselves? What capabilities must they possess to do so effectively?

Yes, some IT organizations have the scale, experience, and maturity to provide integration services. However, much like the component services being outsourced, service integration is not typically a core competency of the client. It is challenging for clients to access and retain the skills required to provide integration services, and service providers are generally able to better leverage process and technology to maximize the efficiency of the delivery model.

10 Key Questions to Assess Application Outsourcing Maturity

It is more likely that, on a case-by-case basis clients are able to provide certain elements of the integration work–such as chargeback, asset management, or software license management. The interplay between the role of the multisourcing service integrator and the retained governance functions of the client will be a key planning factor in shaping the scope of services for the MSI.

How much should an IT leader expect to pay for third-party multi-sourcing integration services?

We’ve seen the multi-sourcing service integration as a self-funded component of the deal structure; some clients make self-funding a requirement.

When we started developing this approach, we assumed that it would require a client to invest more money and that the benefits would eventually offset the added costs. The multi-sourcing integration layer uncovers more than just labor arbitrage savings; it’s designed to rationalize out inefficiencies in process, revealing a second layer of savings as great or greater than the first. So the overhead and increased investment on process and tools are usually offset by delivery cost reductions.

In addition, the segmented delivery structure increases competition by expanding the service component provider market to Tier 2 providers. And the contractual flexibility built into the plug-and-play deal structure encourages a focus on competitive market rates through the contract term.
You helped the state of Texas develop its new multi-sourcing service integration model. Why did they take a chance on this unproven, emerging model?

The state was midway through a significant change initiative and needed to recover within a restricted budget. The benefits of the multi-sourcing service integration model addressed the state’s critical objectives in the short and long-term: operational visibility, contractual flexibility, and efficient pricing. The alternatives–a single provider or multiple providers without Integration-as-a-Service–did not meet these critical objectives.

When will you know the new model is working in Texas? What will be the key indicators of success there?

We get asked this a lot. Ultimately, like any sourcing initiative, the key indicator will be that the state agencies are receiving the services they have contracted for within the context of a client’s objectives. All indications are that the model is working and benefits are evident in the early stages of a recently transitioned service environment.

Are there any other high profile examples of the third-party integration model for outsourcing at work?

There are a number of organizations, such as General Motors [GM], that have successfully implemented elements of the multi-sourcing integration structure over many years. There have been recent announcements similar structures within the public sector in the U.K. and numerous examples in commercial environments, such as at Rolls-Royce. Different models and methods of implementation are being developed and tested by IT service providers.

But GM, which managed much of its multi-sourced IT itself, recently announced plans to bring much of that work back in-house. Is that a rejection of multi-sourcing and service integration?

My understanding is that GM is moving from a predominantly outsourced to a predominantly insourced environment. Whether an organization is outsourced or insourced, service integration is a critical function.

You say that the adoption of ITIL and process improvement programs is accelerating the trend toward third-party management of multi-sourced environments. But some industry watchers have argued that these process frameworks fail to take hold when implemented by outsourcing providers. How do you address that?
It is very important that the goals and the plan of adoption of the service integration model are aligned both with the maturity of the service component provider(s) and the operational dynamics of the client environment. Most implementation models focus on staged introduction and adoption, with pilot programs to confirm the value at each stage.

Process maturity is not a one-step formula; it is a method of approach to maintenance–constantly realigning and testing in a changing environment. A well-documented contemporary service management manual is critical to maintaining alignment among all the parties.

Who is best positioned to offer multi-sourcing integration services for enterprise IT? Service providers? Consultants? And is it important that the integration provider is independent and not providing an actual IT service?

It is beneficial to have an integrator that is both knowledgeable and experienced providing the component services. Sourcing advisors can help clients develop deal structures, but it’s the service providers that have experience delivering market-based enterprise IT services and are best positioned to provide Integration-as-a-Service.

The integrator can be one of the IT service providers; however, to optimize the model and benefits of the third-party ‘independent auditor,’ we recommended that the service manager only provide the integration services.

Clients may start down the path multi-sourcing service integration deal structure by restructuring existing agreements to carve out the MSI role and still have the incumbent provider provide service integration and component services. But over time, we recommend that the integrator be independent to perform oversight functions such as process compliance, service-level management, and bill reviews.

How does this work in terms of deal structure? Does this get the IT leader get back to the place of “one throat to choke” when things go wrong?

Accountability and service responsibility have moved from one entity controlling a process to a series of entities–both within a client environment and among service providers–working closely together to ensure a client’s needs are addressed. The role of a facilitator requires all parties to think through what this means in terms of performance, reporting, proactive maintenance, responsiveness, as well as who will coordinate addressing problems.
In general, the multi-sourcing integration service provider is responsible for delivery of end-to-end services to the client and thus owns the day-to-day client management interface role. The service component providers play a critical role in the provider-client relationship as they have direct touch with the end users on a daily basis and participate with the integrator as needed in management meetings. The balance of roles and responsibilities is key. Both the integration provider and component providers participate in governance and have active client relationship management responsibilities to ensure customer satisfaction.

What are the biggest mistakes you’ve seen in implementing a multi-sourcing integration service layer.

Figuring out the operational detail of the inter-party Operating Level Agreements (OLAs) after contracts have been awarded is a mistake. It’s also critical to distinguish between shared and related performance metrics across multiple contributors to service delivery. Finally, it’s key to institute the necessary levers in the deal structure to enforce alignment between the shared service management manual and the OLAs between parties.

This approach will have to be refined and updated as all the parties become more adept at managing in today’s complex environments.

When will multi-sourcing management reach a point of maturity and what will that look like? Or are we due for a swing back in the direction of single-sourced environments?

We don’t expect a swing back to single-sourced environments, but we do expect clients to demand more sophistication in addressing a multi-sourced environment. With the proliferation of new service offerings such as cloud computing and the growing need for greater plug-and-play flexibility in sourcing portfolios, the days of one particular service provider comprehensively addressing a client’s needs are behind us.

Source: Integration-as-a-Service the IT Model of the Future? By Stephanie Overby


Outsourcing Security: What Small Businesses Need to Know

One question that small businesses often grapple with, especially in the early days of their development, is whether or not to outsource at least some aspect of their security. There are many instances when outsourcing computer, data, and network security makes sense:

  • You may lack the appropriate in-house skills and resources
  • You may not be in a position to make a full-time hire, let alone multiple hires
  • You can’t find the right person to fill a full-time role (Forbes expects our current cybersecurity workforce shortage to reach 1.5 million unfilled positions by 2019)

As a result, forecasters predict that the booming managed security service provider (MSSP) industry will grow from $8 billion in 2015 to $30 billion by 2020. So does outside security help make sense for you? Possibly. But before you even think about outsourcing, you need to develop your own clear idea of what it is you actually need help with in the first place.


Outsourcing Cybersecurity 101
The simple truth is that you’re not ready to outsource your small business security if any of these three points apply to your company.

  • You can’t clearly articulate your problem or goal
  • You don’t know where your assets reside or what data or systems you’re trying to secure
  • You don’t have someone on board to actively own and manage the outsourced relationship

Small business owners must carefully avoid giving managed-security service providers the impression that they don’t know what they need. The reality is many security vendors will see nothing but dollar signs; they may guide you to toward solutions that are easiest for them to implement instead of the solutions that best fit your needs.

Think of it this way: if you go to a brake shop because you think your car has a brake problem, you’re more than likely going to cough up the cash for new brakes. Meanwhile, you may actually have a bigger issue with the car that remains unaddressed. Your shiny new brakes may work like a charm, but you can still get into an accident if the steering’s off. And if you go back to the brake shop angry, they’ll simply shrug and say of course they didn’t protect you for that.

Advanced thought and planning is the best approach to outsourcing small business security. The worst thing you can say to a managed security service provider is, “I don’t know where to start.

Outsourcing small business security works well only when you achieve these states:

  • You have a clearly-defined problem to solve or goal to achieve.
  • You find a vendor you work well with and can trust to deliver on your specific needs

There’s no lack of outsourced security vendors from which to choose. But if you have a specific security goal that lends itself to outsourcing, you can whittle down the list to providers that specialize in that area. Then discuss these 10 essential topics with the managed-security service providers on your short list before you sign an agreement.

What to Ask Prospective Managed Security Service Providers

  • Find out whether they’ve worked with small companies that are similar to yours in size, stage, and industry
  • Get references
  • Review their standards, policies, and procedures carefully
  • Make sure all requirements and responsibilities will be documented in service level agreements (SLA) and/or statements of work
  • Determine who on their side will manage your account and discuss your expected level of interaction (you don’t want to enter a partnership expecting access to the Principal only to find out later that’s not the case)
  • Ask about reporting (what metrics do they measure, and how often do they report)
  • Go over the game plan for incident response and recovery
  • Ask about systems compatibility
  • Make sure they can scale their protection as your company grows
  • Have an exit strategy should the time come when you want to stop using their services

Small Business Security Caution
Remember, no one outside of your business values your business as much as you do. When you outsource aspects of your company’s security you place your safety and success in their hands. You may pay for a level of professionalism, but when it comes down to it, an MSSP will act with its best interests in mind. Outsourcing isn’t something you jump into quickly. Success requires a considerable amount of planning, discussion, and trust-building.

Security Resources for Small Business


Source: Smallbusinesscomputing- Outsourcing Security: What Small Businesses Need to Know By Ryan Berg

Managing risk and enhancing efficiencies with bundled outsourcing

UK companies are shifting towards ’bundled outsourcing’ – using single contractors to deliver multiple services – to transfer risk off their balance sheets and concentrate more on their core businesses. Duncan Hall of Bilfinger Oil and Gas explains more.

With UK manufacturing showing signs of a slowdown and the oil and gas sector facing unprecedented challenges, engineering managers are increasingly being pushed to increase productivity levels while enhancing overall cost and resource efficiencies. These pressures are also resulting in the need for many firms to transfer risk and functions away from their balance sheet. With this in mind, companies are increasingly looking to engage with outsourced service providers both in the UK and in international markets.

As a result of this increased demand for outsourcing contracts, we’re now also seeing a shift towards bundled outsourcing frameworks. Bundled outsourcing refers to the use of a single provider to deliver multiple service functions. For example, an organisation might engage one supplier to provide complete lifecycle support on a new plant or facility, from consultation, to installation, to maintenance and repair of equipment. More specifically in an industrial scenario, an organisation might agree a bundled framework agreement to provide industrial scaffolding and insulation services , while also providing maintenance services such as fire and corrosion protection.
Maintenance and repair of equipment might be included in a bundled outsourcing contract
When implemented effectively, bundled outsourcing can help to cut costs, reduce complex supply chains and associated admin and simplify back office functions.

For those organisations looking to benefit from bundled outsourcing they should consider an outsourcing provider who self-delivers rather than one who sub-contracts to a third party. This provides the opportunity for multi-skilling and multi-tasking which can generate further operational efficiencies and performance benefits.

Managing Risk

Some parties argue that there is more risk associated with bundled outsourcing due to the increased dependence on just one or two providers. To help avoid this, many organisations are now favouring larger suppliers within the supply chain who offer a broader range of services and have the financial stability to support 10-20 year bundled agreements and the varying economic and business challenges that arise.

It’s also worth remembering that there are many risks associated with multi-sourcing. In a best practice scenario a multi-provider service delivery environment should not create additional complexities. However, when compared to a bundled contract, the more complex supplier structure means that there may be more scope for inconsistencies, security issues and additional costs due to continued monitoring and renewal of contracts, and possible replacement of providers.

To help mitigate risk, there’s always the option of introducing an incentive based shared risk and reward pricing model. Although these agreements are complex and can vary massively according to individual business needs, they are typically based on projected revenue generation or cost savings and involve a reward for providers if they exceed service performance or a penalty if objectives aren’t met. Although incentives can’t change the provider’s function, they can help to maximize the overall outcome and solidify a sense of trust and partnership.

It goes without saying that the best way to mitigate risk is to engage an outsourcing provider that is well established, with a reputation for transparency and high quality service.

Effective strategies to maximise return

Before a manger chooses which functions to outsource, I’d insist on a full business evaluation to determine the organisation’s strengths and values. By identifying its core competencies and capabilities, businesses can then pin point tangential functions that use resource but contribute little to profitable growth.

In most cases, engineering companies will find it beneficial to outsource non-core activities to third parties, allowing them to redirect strategic internal resource to mission critical projects.

From my experience, I would recommend that an organisation considers outsourcing if it’s looking to reduce operational costs, transfer risk to a third party or acquire new technology or specialist skills that can ease entry into new markets without the need to invest in training or new infrastructure. By outsourcing these functions, companies can look to increase profit margins.

Engineering managers should also keep in mind that effective outsourcing requires clearly established goals and a timeline with contractors from the outset and continuous lines of communication. To support this, some outsourcing providers have developed proprietary technology that can help to provide structure to consultations and helps to determine customer requirements and provide defined objectives and actions.

Another key issue to consider for initial outsourcing is whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply. This may mean that employees who are wholly or mainly assigned to the service being outsourced will automatically transfer to the supplier. For that reason, internal communication is absolutely crucial. It’s important to be fully transparent with stakeholders and employees and communicate objectives, rationale and impact. To ensure success, time needs to be given to people to allow them to adjust to new working environments.

Conditions within the private sector, in particular the industrial sector, are continuing to drive demand for outsourcing contracts. With this in mind, many organisations are now recognising the benefits of divesting non-core activities to specialist providers as part of bundled contracts, in order to focus on growth and avoid complex supply chains.

Read more:

Source:   theengineer-Managing risk and enhancing efficiencies with bundled outsourcing


9 Tips for How to Use Operating Level Agreements in Multisourcing

Operating level agreements (OLA) aren’t exactly new to IT. Unlike service level agreements (SLA) between an IT organization and its service provider, OLAs state how particular parties involved in the process of delivering IT services will interact with each other in order to maintain performance.
“By establishing OLAs between these groups, the IT function can provide the appearance of seamless service to the business,” says Edward Hansen, partner with law firm Baker & McKenzie.

Until recently, OLAs were most often internal to an IT organization or a single large service provider, ensuring that the groups within the organization were working together to deliver IT services. But with the rise of multisourcing, OLAs are back in the spotlight.
“In this context an OLA becomes a record of shared assumptions and interdependencies at the level of processes shared and intersecting between each of the multiple parties engaged in the delivery of services,” says Les Druitt, founding principal of outsourcing consultancy Sourcing Advisory Services. “It is where the rubber meets the road in a multi-party outsourcing.”

“It has become more and more important for the ultimate customer to know that the relationships and interactions among these multiple parties are well-known, documented in clear and precise language, and reflected in binding agreements that can be enforced-if necessary-by the customer,” says partner Robert Zahler, partner in global sourcing group at law firm Pillsbury.

How to Use OLAs in a Multi-Sourced Setting

Establishing OLAs in the multi-sourced environment, however, is inherently more difficult than instituting them within a single organization.

“There is limited understanding of this new role, what level of description is sufficient, the role the OLAs play in validating both pricing and solution assumptions, and in facilitating continuous improvement,” Druitt says. “Creating OLAs for the purposes of documenting and confirming how solutions will play in harmony requires a collaborative process to arrive at a set of documents that all parties respect and support.”

Here are nine dos and don’ts for establishing OLAs in the multi-sourced IT environment.

1. Do expect bumps in the road. “Establishing OLAs requires a service provider to clearly understand their own processes and [to be in] harmonious agreement with peer providers about the role each is to play within those processes,” says Druit. OLAs for mature processes, such as incident management, will be easier to establish than for other areas. “It can be a struggle when process maturity levels differ significantly between providers,” adds Druitt.

2. Don’t let service providers hijack the process. “Often the service providers are most interested in those OLAs that are necessary to support the performance of their delivery against a client’s SLA,” says Druitt.
One provider may not be able to meet an SLA commitment for incident management unless another provider commits to certain hand-offs and time frames. “OLAs are a powerful tool because they document a powerful process. But that process is not talking to your service providers to see how they’re going to behave with each other,” says Hansen.

“The really powerful process involves the internal discussion between the IT groups and the business to determine how the service needs to be provided in a sourcing-agnostic manner,” Hansen says.

3. Do address OLAs before RFPs. “Customers often fall into the process by first executing multiple outsourcing contracts, and only then recognizing that they need to coordinate and integrate activities across these various outsourcing contracts,” says Zahler. “OLAs should not be used after-the-fact to document relationships that have just developed over time. Rather, OLAs should provide the roadmap for how those relationships should be established in the first instance.”

An OLA can be useful in helping to draft an RFP for services, says Hansen of Baker & McKenzie.

4. Don’t outsource accountability. Establishing OLAs between service providers does not absolve IT of responsibility. “The CIO’s organization must be responsible for the service across the board,” says Hansen. “Failing to do this results in finger-pointing and business users who feel at the mercy of outside service providers regardless of the OLAs.”

It’s a good idea to establish internal OLAs first, advises Hansen. “This has nothing to do with how hard or easy you will be on your vendors. It only has to do with making sure that the IT organization and the business realize and internalize that outsourcing does not mean they are off the hook.”

5. Do be clear and concise. It can be tempting to overthink OLAs and litter them with legalese and IT jargon. Resist. “There’s usually no reason to get too bogged down in the formality,” says Hansen. “The most important thing about OLAs is that they have to be readable and understandable by both business and techie readers.”
6. Don’t accept business OLAs. A service provider may push for a customer to accept OLAs against end-user performance, such as requiring a business unit to give full project requirements to the service provider within a certain time frame. Don’t agree to them, advises Druitt.

“While the dependency is certainly there, the underlying agreement is not there,” Druitt says. “The business unit is the customer and should not be treated like a partner in the delivery of service.”

7. Do include all key interactions. “Customers often do not know what to include in an OLA,” Zahler says. “At a minimum, the OLA should identify the particular services covered by the OLA and specify how key interactions will be handled.”

The most important interactions include work planning; provision of operational data, information and reports; integration of activities with the service desk; coordination of changes; handling of the cross-functional services; and governance and dispute resolution.

It also is important that the OLA expressly state that the customer, while not a party to the OLA, is what lawyers call a “third-party beneficiary” of the agreement. “This allows-but does not require-the customer to enforce the OLA in its own name if it desires to,” says Zahler.

8. Don’t manage by OLA. It’s a mistake to “use these additional metrics that come from establishing OLAs as a means to manage the delivery in a whole new way,” says Druitt. “The measures should support the delivery of service and are really for the providers to manage against.” Step in only when providers fail to address underperformance.

9. Do track your OLAs. “OLAs can often provide the metrics that provide the basis for good decision making-if they’re tracked, which they often aren’t,” says Hansen. These metrics are helpful not only in improving service delivery, but they can also provide a solid foundation for future sourcing decisions.

“If you have OLAs that are current and actually tracked, the decision to outsource or not has more integrity,” says Hansen. “If the decision is made to outsource, then documenting legacy SLAs is a snap, which makes the discussion around transition and transformation much easier to have.”

Source: Tips for How to Use Operating Level Agreements in Multisourcing by Stephanie Overby

IT outsourcing buyer’s market creates promise and challenge

IT leaders are using their leverage to ink more flexible — and cheaper — contracts with service providers. But there is a catch.

Enterprise outsourcing buyers in the world’s major markets continue to push for shorter, cheaper contracts from their providers. And they’re getting them. So what are they giving up in the bargain?

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Despite years of promises and gap-filling acquisitions, it remains a woefully inadequate mishmash.

“In short, nothing,” says John Keppel, president with outsourcing consultancy Information Services Group (ISG). “Contracts are now more flexible than ever before in their commercial and legal design, with lower restructuring, exit, and change barriers. This gives the buyer tremendous leverage, and forces service providers to be more innovative, efficient and accommodating to win or retain the buyer’s business.”

The number of outsourcing contracts signed in the third quarter of 2015 was up nearly 20 percent from the prior year while annual contract vales remained level at $5.6 billion, according to the quarterly ISG Outsourcing Index. The number of awards so far this year is at an all-time high of 1,094, even though annual contract values are down 11 percent over this period last year, says ISG.

Enterprises are shopping for specialized services from niche providers and rejecting long-term contracts in order to take advantage of changing technology, pricing pressure and evolving outsourcing models. Just five mega-relationships (contracts valued at more than $100 million annually) were signed during the third quarter. That brings the year-to-date total to 14, the lowest such figure through three quarters in the last decade, according to ISG. These larger deals will not disappear altogether, Keppel insists, but will be signed at a slower rate and in less mature markets outside the U.S. “They are still the domain of the large firms with the scale to deliver that scope of work,” he says. “It will be sometime, if ever, before they go away completely.”

In the Americas, specifically, the annual contract value of restructured deals hit its second-higher level in the last decade. The maturity of this market—particularly the U.S.—is driving the renegotiation, says Keppel. “Clearly, companies are looking to leverage their buying power and restructure their contracts to take advantage of lower prices.”

IT outsourcing contracts dropped 15 percent for the quarter, as large infrastructure deals gave way to smaller cloud contracts, according to ISG. “Infrastructure is the area most under attack in the As-a-Service economy,” Keppel explains. “It is here we have seen the big new market entrants, the rapid commoditization of offerings, and the real price wars.”
The promise — and pain — of IT-as-a-Service

This era of full-fledged multisourcing, however, creates complications for IT organizations. “Buyers must take on the complicated task of integrating and managing the services of multiple providers,” Keppel says, “a challenge that requires increasingly more sophisticated internal demand-management capabilities.”

This competitive market is creating revenue risk for traditional outsourcing vendors as well. “However with deals more frequently in play, it also offers opportunities to gain scope from other providers,” Keppel says. “Smaller deals also offer opportunities for smaller niche providers to gain a foothold at larger clients, with their entry point being the ability to offer newer technology or more specialized or innovative solutions.”

The number of deals valued at less than $40 million reach a record high for the first nine months of 2015. However, deals will not get infinitely shorter and smaller as time goes on. “Companies seem to have found the right balance between flexibility and commitment in the current market,” Keppel says.

Most importantly, enterprises are examining — and, in some cases, exercising — the capability to design, source, aggregate and manage services in a multicloud environment, a model ISG dubs “IT-as-a-Service.” Providers that can market their value added services via brokerage platforms and buyers that embrace the role of service integrator will come out on top in this environment, says Keppel.



Source: CIO.comIT outsourcing buyer’s market creates promise and challenge by Stephanie Overby

Outsourcing renewals: Where do I source services?

With thousands of IT services contracts coming up for renewal, CIOs should take a careful look at where they source services from
With billions of pounds worth of IT outsourcing agreements coming to the end of their contracted period over the next few years IT services work will inevitably move – and this might not just mean between suppliers but continents.

Finding the best location or mix of them for IT services has become a more complicated task in recent years because CIOs have more options. Suppliers around the world offer IT and business process delivery, all of which have their own advantages.
In the past CIOs might have made a choice between keeping work onshore or shipping it to India, but today there is a move to multi-shoring models.

There are suppliers in eastern Europe, south-east Asia, South America and even Africa providing IT services. Meanwhile India itself has changed and many CIOs have to ignore preconceived notions about its advantages and disadvantages and start looking at it afresh.

No one place fits all

Offshore services have become so mainstream in the private sector, that canny marketing executives and media-savvy CIOs do not refer to their offshore strategies but their “rightshore” strategies. This is the belief that the best IT services will be delivered onshore, offshore, nearshore or all of them.

Today it is possible for a UK business to have call centre services delivered from a low-cost region in the UK, have its digital software development done in Ukraine and the application development in India. Then you have large global companies that might have a different mix of delivery locations for businesses units in different geographies. For example, an Asia-Pacific (Apac) arm of a global business might choose a combination of India, the Philippines and China, while the North American arm might use Brazil, Costa Rica and Mexico.

And it is not just a case of finding a supplier in these locations that fits your needs and packing it off to them, but actually setting up operations or partnerships offshore. This can be a joint venture with a supplier, a captive centre or fully fledged operations unit.

Large companies such as AstraZeneca are pioneering these models. Last year the pharmaceutical giant opened an IT service centre in Chennai which kicked off an insourcing strategy focused on a global delivery model.

The Chennai operation is focused on SAP, infrastructure operations, application development and maintenance, as well as cloud and mobile. AstraZeneca will also open delivery centres in eastern Europe and California as part of the global delivery strategy. Last year, David Smoley, CIO at Astrazeneca, told Computer Weekly one of the advantages of the company’s decision to use offshore IT, but bring it in house through an Indian global delivery centre, was motivating staff. “We are able to create a team that feels it is part of a company that is saving lives and creating drugs. We also see it as being important in career paths to give staff exposure to other parts of the company across the world,” he said.
In 2013 Daimler announced plans to make savings of €150m a year by bringing IT services in-house and expanding its IT operations in India and Turkey.

These types of developments have given places like Bangalore some of the most in demand real estate in the world, with some of the world’s biggest companies across all sectors establishing deep roots there.

Peter Schumacher, director at business consultancy The Value Leadership Group, said businesses use offshore centres to help them differentiate, rather than just cutting costs. “You have to use offshore centres today to do things that you can’t do elsewhere and not just cut costs.” He said because companies – not suppliers – own the offshore resources, the savings made are being invested in further offshore work. He said this is as much about creating business opportunity as cutting costs.

These locations are becoming deep talent pools. Places in India, for example, have staff with years of experience that can support businesses with strategic plans such as digital developments. Years of offshoring to India have matured it as a service delivery location and, while lower costs are still an attraction, it is the transformative opportunities developed over the years that are attracting many businesses.

India changed and it needed to

The model where Indian service providers offered lower-cost equivalents could not work forever. Automation is providing a cheaper alternative for many IT and business process tasks, software as a service is eating into the enterprise software market and shareholders of the now huge Indian players want non-linear business growth.
The Indian outsourcing experience of US manufacturing giant GE depicts the evolution of India as an IT services destination. GE is regarded as the first large corporation to harness India as a delivery centre when it first arrived there 20 years ago. GE’s annual IT services spend has topped $1.6bn in recent years. But today the company is reducing the proportion of IT it outsources from about 75% to under 50%, according to Tony Zupa, former executive vice-president of global IT sourcing, vendor management & outsourcing operations at GE Capital.

Now an independent consultant he said that, despite this reduction, companies such as India’s Tata Consultancy Services and Cognizant have great opportunities because, over the years tehy have built strong relationships with GE and understands its business. He said it can help GE with its industrial internet and contribute to its growth as a business, which includes becoming a top 10 global software supplier by 2020, rather than just reducing its costs. “Outsourcing to India by GE is not going to go away,” said Zupa. “There is a balance needed and an important part of the global footprint in GE’s strategy.

CIOs renewing contracts need to think about India in a different way, according to Schumacher at The Value Leadership Group

He said scale is India’s biggest draw. It has the infrastructure and skills that can help companies start from zero and scale up to operations with thousands of staff. Labour attrition might be high, but it is easier to find replacements, he said. He said new recruits are available to fill gaps quickly. “India has the biggest and most diverse talent pool.” And it is not just new graduates seeking low-level work but highly skilled and experienced staff. “There are a lot of people available in India with 10 to 15 years’ experience.”

Many of these workers have been employed at other global businesses. There is former staff of technology giants such as Google based in India’s technology hubs and knowledge is the new resource being traded. The likes of Google employ thousands in India. When these people move on the knowledge and experience goes with them and other companies can tap into it, at a lower cost in many cases.

Not just for the corporate giants

And you don’t have to be a pharmaceutical or oil giant to tap into this. Mid-sized companies can benefit from the pioneering that large companies have done to establish offshore delivery locations.

For example Cambridge University Press, a company which publishes academic journals and books and has English language courses and education businesses across the world, has significant outsourced operations, many of which are in offshore locations. Following its success the company has increased its offshore operations over the last five years.

The company also has offshore captives. Its first was in Manila, Philippines, where it started around five years ago with 40 staff focused on software development and testing, supporting its online digital product. Currently, it has just over 250 people and expects over 300 by the end of 2015. The Manila centre now has 18 separate teams carrying out a wide range of internal services.

Speaking at a recent CW500 event about outsourcing Mark Maddocks, CIO at Cambridge University Press, said it is cost-effective with low attrition and wage inflation is not as bad as people say.

Maddocks said it does however require management time and overhead. “They are my team and I still have to manage them.”

The company also has offshore software development in India, with development centres in Calcutta and Hyderabad. These are with two very large Indian IT services providers and both centres have about 50 people in them. It has just launched a hybrid of traditional offshoring to a supplier and a captive through a business process outsourcing operation, where it shares a building with the existing team in Hyderabad.

What shore is right for you?

But offshore is not for everyone. Recent years has seen the rise of many of the nearshorer alternatives. The short travel distances, similar time zones, high education and good English skills of central and eastern Europe have made the region a major source of services for UK companies.

The former Soviet Union had a strong educational emphasis on engineering and the sciences. Many of the countries in this region today have a highly skilled workforce in areas such as computer science, but at much lower costs than the UK. Some companies believe that eastern Europe has a distinct advantage over places such as India when it comes to outsourcing, because employees tend to take a more collaborative, and less process-driven, approach to projects.

Eastern European countries in the EU could be a good choice for work which requires adherence to the Data Protection Act.

But IT leaders should not forget onshore and even local opportunities. The DVLA is a case of a large organisation backing a UK location with investment and building a community of skilled staff around it. The organisation not only took the decision to insource its IT but also planned to invest in its home city of Swansea to create a base of skilled staff. This involved setting up startup hubs and working closely with educational establishments.

DVLA CEO Oliver Morley told Computer Weekly that, in the past, the DVLA could not attract the right IT talent itself – and even IT professionals in its home town of Swansea with the right skills would be overlooked. “There was a saying that, if you were an IT professional in Swansea and wanted a job at the DVLA, you would have to go to London and see Fujitsu,” he said.

But this has now been turned on its head, he added. “If you live in Swansea and work in IT, this is a great place to work.”

According to figures from ISG, if you just take into account IT outsourcing contracts worth over $5m a year, globally there are nearly 3,000, worth over $270bn (£175bn), coming up for renewal around the world in the next three years. Whether you insource or outsource offshore, nearshore, onshore or even in the local community, at contract renewal time you should know your options.


Source: computerweekly- Outsourcing renewals: Where do I source services? by Karl Flinders

50 percent of repetitive IT outsourcing jobs can be assigned to robots in the next 3 years, finds study

A research report from Mindfields Consulting has found that a new wave of robotic software is revolutionizing the way businesses approach staffing, and changing the services demanded of outsourcing providers. The research report titled “Robotic Process Automation (RPA): Driving the next wave of cost rationalization” was released in Melbourne in presence of senior executives of top ASX100 organizations.

RPA allows tasks, previously conducted by humans, to be done by increasingly intelligent software that learns on the job. The RPA market is likely to grow to US$5 Billion by 2020. Simen Munter, ANZ Banking Group’s GM of Hubs (Offshore) briefed a Mindfields event about his RPA experience at offshore hubs. There was also a panel discussion featuring leading service providers. Videos of the event can be viewed here.

This study explains how RPA is getting better, smarter and cheaper, and evaluates the impact on client’s options and disruption to major outsourcing vendors business model. It includes contributions from Cognizant, Dell, EXL, Genpact, HP, IBM, Igate, Infosys, Sutherland, Tech Mahindra, Wipro and WNS.

64% of these participants agreed that RPA would reduce the human based pricing (HBP) and non-linearized their business model. 42.9% of the respondents have already seen reduction of more than 20% human efforts due to RPA.
Mindfields’ study found that “efficiency” is as compelling an incentive for RPA as “cost”. IT and business process outsourcing service providers were looking to embed advanced RPA software into their offerings.

Mohit Sharma, Director, Mindfields, said, “This research has been undertaken to address the need for independent advice in such an important new area. I am thankful to all the service providers for providing 42 honest case studies of RPA in action, in client situations, included in the report.”

“The report should reduce the decision life cycle for both the buyers and client organizations. It will assist them to make faster and better decisions,” said Sharma.”RPA is going to be a journey for both clients and service providers, so the actionable steps outlined should guide customers and help service providers to assess their position in the market landscape and fine-tune their strategies.”


Source: dqindia-50 percent of repetitive IT outsourcing jobs can be assigned to robots in the next 3 years, finds study