Nine out of ten Fortune 500 companies currently outsource some component of their IT function, but many of them still haven’t realized the benefits. They are often locked into long, inflexible contracts which deliver disappointing cost savings, and experience limited agility and responsiveness through the loss of control. However, times have changed; technology has evolved and business priorities have been redefined. In the digital era, traditional information technology outsourcing (ITO) models no longer work effectively. It is time to rethink and reshape the conversation.
Digital transformation is here and now. The convergence of cloud, social, mobile, analytics and the Internet of Things (IoT) is creating new products and services — even business models — which were inconceivable just a few years ago. Research shows that companies that believe strongly in the benefits of adopting new technologies are more likely to lead in both revenue growth and market position.
In order to be flexible, agile and realize the potential of digital transformation, businesses can no longer be tied into inflexible service delivery models. The constraints of traditional outsourcing models — with their rigid scopes of work, siloed operations and KPIs, and cumbersome multi-year contracts — are no longer acceptable.
Digital transformation demands the adoption of flexible models to encourage innovation, and this is having a major impact on IT sourcing decisions. Conversations are being shaped by three factors:
Performance: IT outsourcing has historically focused on cost savings at the expense of flexibility and future innovation. To ensure that this doesn’t happen again, measurement needs to be completely focused on core business metrics and suppliers rewarded with outcome-based contracts. This encourages partners to integrate their own solutions with third-party products adding-value and continuous service improvements that deliver value throughout the entire contract lifecycle.
For example: Security, a mission critical function, is often outsourced as many firms are unable to keep up with the real-time threat landscape with limited in-house resources. Specialized security providers can offer global visibility across the Internet to identify new attacks and develop countermeasures. It also lends itself to measuring outcomes, such as the time taken to patch zero-day vulnerabilities or helping an organization achieve compliance with the Payment Card Industry Data Security Standard (PCI DSS).
Platforms: The digital business revolution, driven by cloud, social, analytics, mobility and the Internet of Things (IoT) will continue to guide businesses as to what types of IT functions they will outsource. As-a-service models can help agility, scalability, effectiveness and cost reductions, but should only be embraced where they add value.
For example: Cloud and as-a-service offerings allow companies to move their IT provision to an OPEX-based spending model, where they pay for what is consumed. This also frees companies from having to invest heavily in assets such as data centers that may have to last 20 years. Instead they can just purchase what they require, when they need it.
Partnerships: ITO shouldn’t just be seen as off-loading a problem/service to a third party and becoming detached from it. Companies should carefully select partners and ensure that they work well together for the ongoing good of the business. Digital transformation is driving the age of the ‘Smart Partnership’ and I’ll be sharing some thoughts and guidelines around this in future articles.
It is clear that to become one of the successful digital companies of the future, organizations must find new ways to engage with technology partners and bring this expertise into their business. They need to be able to recognize and act quickly on potential business opportunities, react rapidly to changes in their marketplaces and not be tied into fixed ways of operating in order to outperform competitors.
Next week, I’ll be discussing the dawn of new ITO thinking. Can traditional ITO models support the digital era and what are the other options?