Outsourcing Advisors: 6 Tips for Selecting the Right One

When it’s time to outsource, selecting the right outsourcing advisor may be the single most important decision you make—one that sets up your future relationship with an IT services provider for success or failure. Given that IT outsourcing transactions are complex and vendors are savvy at setting them up to their advantage, solid sourcing advice from a third party can help to level the inherently uneven playing field, particularly for less experienced IT services buyers.

But deciding which sourcing advisor is right for you is trickier than it may seem. All sourcing advisors are not equal. A big name firm may not give you the attention you need. A start-up may not have the depth of experience you require.

“There has never been as great a need for outsourcing advice as there is today, and there has never been such a plethora of advisors competing to give their advice,” says Phil Fersht, former AMR analyst and author of the outsourcing blog Horse for Sources. (Fersht now works for vendor Cognizant Technology Solutions.) “Whether you are a highly-sophisticated enterprise with your outsourcing experience or a complete novice, you will most likely have to engage a third party at some stage during the outsourcing lifecycle, whether it’s simply to administer and negotiate a complex contract or to hold your hand through the entire evaluation process.”

There are some general qualities that make for a good outsourcing guide. “The very best advisors are not only guardians of the clients’ interests, but are also excellent facilitators, who understand both sides’ perspectives, risks and interests, and can work creatively and constructively to find solutions that permit both sides to succeed,” says George Kimball, an outsourcing attorney in the San Diego office of Baker and McKenzie.

Here are six tips to help you choose your outsourcing consultants wisely.

1. Know your goals. “Make sure you define your basic sourcing strategy before selecting the sourcing advisor,” says Richard Matlus, research advisor for Gartner IT Services and Sourcing. For example, is your impetus for outsourcing to reduce costs? If so, adds Matlus, select an advisor that will help you achieve that goal. Some advisors excel at holding vendors’ feet to the fire on prices, while others specialize in other areas.

2. Bigger is not always better. Outsourcing advisors come in all shapes and sizes, from the big name firms that charge correspondingly high fees to independent individuals with lower hourly rates.

“When dealing with third party advisors, you usually get what you pay for,” says Fersht. “However, we have seen situations where enterprises have paid top-dollar for third-rate advice and others where customers received great service from one of the smaller, cheaper firms.”

A large, well-known consultancy may be a good option, but don’t make the decision based on name recognition alone. Now more than ever, there are great lower cost options available, thanks in large part to experienced sourcing advisors who were laid off during the economic downturn and who are now in business for themselvesand, as such, available at a large discount to you.

3. Get personal. You hire a consultancy, but you work with a consultant. “The individual advisor in charge of the project is at least as important as the firm,” says Kimball. “The (best) firms all offer good people, sound methods and a wealth of experience, but individual chemistry between advisor and client is crucial.”

Adds Matlus, make sure you’re not getting stuck with the rookie.

4. Check—and double-check—those references. You’ll want to talk directly and discreetly with multiple clients of your prospective sourcing advisor who are at least a year into their negotiated outsourcing deals. They’ll be in the best position to tell you whether the advisor’s guidance was worthwhile. The best references, as always, will come from people you know and trust.

“References from enterprises not put forward by the advisor are even more valuable,” says Fersht. “Try networking with peers at other companies who have experience working with outsourcing advisors.”

Make sure the references you talk to were involved with the consultancy at the start, or better yet, are those who’ve had experience working with the individual professional who would lead your process, adds Matlus.

5. Test drive the tools. Take a close look at the processes and methodologies the advisors use. The advisor should have a proven approach for taking enterprises through the outsourcing lifecycle.

“Ask them specific questions on how they applied it in previous client cases and how they would work with you during each stage of the cycle,” says Fersht. “You will learn a lot about how much they have thought through your issues when asked how they will apply their methodology to your specific situation.”

The better the advisor’s tools, says Matlus, the better and more expeditious the sourcing process will be.

But don’t forget about the need for flexibility, as well. “Look for the ability to vary usual methods to suit circumstances and client needs,” says Kimball. “One size does not fit all, especially now.”

6. Investigate conflicts of interest. There’s no doubt that you want an advisor who engenders respect from the vendor community, but when consultants get too cozy with providers, you lose.

“They must be focused on your best interests, not theirs,” says Fersht. “Investigate other business divisions and service lines within the advisory firm to ensure where their interests lie. Also prod them about their relationships with outsourcing vendors to make sure you’re getting an independent view of the market.”

Source: cio.com-Outsourcing Advisors: 6 Tips for Selecting the Right One

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7 hot IT outsourcing trends — and 7 going cold

As IT organizations become more strategic, so too do their partnerships with IT outsourcing providers. Digital transformation, automation, and the data revolution are not just shaking up how IT operates, they are greatly impacting the kind — and quality — of services under contract with IT outsourcing firms.

Here is a look at the technologies, strategies and shifting customer demands shaking up IT outsourcing right now and the once-hot developments that are beginning to cool. If you’re looking to leverage an IT outsourcing partnership, or want to make good on the market for IT outsourcing as a provider yourself, the following heat index of IT outsourcing trends should be your guide.

Heating up: Rapid software development

IT organizations are increasingly looking for partners who can work with them as they embrace agile development and devops approaches. “Organizations are rapidly transforming to agile enterprises that require rapid development cycles and close coordination between business, engineering and operations,” says Steve Hall, a partner with sourcing consultancy Information Services Group (ISG). “Global delivery requires a globally distributed agile process to balance the need for speed and current cost pressures.”

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Cooling down: IT services silos

As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. “In the past, companies may have sourced app services from one provider and secured cloud services from another,” says Ollie O’Donoghue, senior research analyst with HfS Research. “Now, thanks to new methodologies like devops and the increased ‘cloudification’ of business infrastructure, the lines between distinct IT services are blurring. Service providers and clients are far more likely to procure a blend of IT services to deliver business outcomes from a single vendor [rather than] contracting segments of IT out to a range of suppliers.”

Digital transformation is driving demand away from compartmentalization and silos of service delivery and toward frictionless integration, says David J. Brown, global head of KPMG’s Shared Services and Outsourcing Advisory.

Some IT service providers are becoming one-stop shops for their clients through brokerage services or partnership agreements. “Offering clients a full spectrum of services from best-in-class providers is enabling providers to broaden the scope of their offerings, and clients to select the technologies and services that suit them,” says O’Donoghue. “Even large providers which formerly cornered the market with proprietary technology are starting to champion vendor agnosticism in a bid to offer clients impartial, best-in-class IT services.”

Heating up: Cloud integration

Enterprises are moving more workloads to the public cloud, but continuing to run certain applications in dedicated private cloud environments for security, regulatory or competitive reasons. So they’re looking for providers that can seamlessly manage and integrate their hybrid cloud environments, says Rahul Singh, managing director with business transformation and outsourcing consultancy Pace Harmon. “Increasing adoption of software-as-a-service models for specific applications (such as Salesforce and Workday) creates further operational complexity for enterprises,” Singh adds.

Cooling down: Traditional remote infrastructure management

Over the past decade, the offshore delivery of infrastructure management services — from network services and help desk support to server maintenance and desktop management — became mainstream. But remote infrastructure management (RIM) is no longer a growth industry for IT services providers; it can’t compete on price with the public cloud, where adoption rates are growing at compound rates of 25 percent a year. “Almost every enterprise is taking a cloud-first strategy,” explains ISG’s Hall. “Service providers are shifting to cloud management services; but with the double whammy of integrated devops, even this is a short-lived venture.”

Heating up: Talent wars

An increase in consultancy-led engagements and the subsequent demand for more specialists and advisors in IT outsourcing is inspiring IT service providers to turn their attention to talent acquisition and retention, according to analysts at HfS Research. “The challenge of recruiting and retaining the talent necessary to deliver high-quality services has been brewing for some time,” says O’Donoghue. “The spectrum of skills in demand is becoming more focused, [and] providers seeking to compete in the modern marketplace will need to work harder to attract talent.”

Cooling down: Labor arbitrage campaigns

Sourcing IT services in the lowest-cost locations is no longer a competitive advantage, as clients demand use of automation and tools to drive efficiencies instead. “Organizations are driving massive productivity improvements through technology, not labor,” says ISG’s Hall. “Developing a solution that is based on low-cost labor won’t even get a CIO meeting in today’s market. Top IT leaders are driving massive digital transformation projects, and most service providers have adapted their message and core capabilities to be more than low-cost labor.”

Geography is becoming increasingly irrelevant to outsourcing decisions, says Marcos Jimenez, CEO of Softtek US and Canada. “Customers demand providers who are responsive, flexible, innovative and able to leverage emerging technology and solve business problems. They don’t care about where the work is done.”

Heating up: Automation results

Cost savings based on human labor are being supplanted by those delivered by so-called “digital labor.” Enterprises are demanding automation capabilities from their outsourced providers. “Automation not only provides increased efficiencies, but also brings proactive capabilities to deal with issues before they become business-impacting events, which adds significant value to enterprises beyond the typical cost reduction opportunities,” says Singh of Pace Harmon.

Automation is taking hold across middle and back-office functions that have been traditionally outsourced. “If you want to compete, you must automate,” agrees ISG’s Hall. “This is causing disruption in traditional sourcing models and driving service providers to make big bets and commitments on future pricing.”

Innovative clients and providers are taking an “automation first” approach, says Rajeev Tyagi, chief operating officer for Softtek US and Canada. “Rather than identifying human activities within an IT or business process that can be automated, enterprises will use digital labor as the starting point,” he says.

Cooling down: Automation hype

The results of automation are also becoming more transparent. Service providers are now expected to detail the iterative efficiencies that automation will create for clients, says Jamie Snowdon, chief data officer for HfS Research. Unfortunately for providers, that means they can no longer keep the savings to themselves. “Undoubtedly, as newer forms and blends of automation technologies enter the marketplace, vendors will be increasingly required to share the benefits with their well-informed clients,” says Snowdon.

Heating up: Captive offshore delivery centers

With technology becoming a competitive differentiator across industries, every company is becoming a tech company — from automakers to oil and gas providers to retailers. And that’s leading a broader swath of previous IT outsourcing customers to set up their own captive technology services delivery centers offshore, says Hall of ISG. “To compete and scale, enterprises want ‘badged’ resources, which means captives are back as a popular model to accelerate the adoption of automation and maintain the intellectual property for cutting-edge solutions.”

Cooling down: Low-cost service desks and call centers

Likewise, in an era that values superior customer and employee experiences, companies are placing more emphasis on the resources and technology employed to operate their internal service desks and customer-facing call centers.

“Call center consolidation and the desire to partner with strategic vendors continues, but call volumes are still high,” says Jimit Arora, a partner at Everest Group. “While virtual agents and chat bots are becoming prevalent, we see companies being reluctant to expose customers to these technologies just yet. They don’t want blow-back akin to interactive voice response system.”

Meanwhile, “the workplace of the future has made the service desk relevant again,” says Hall. “ CIOs and IT leaders quickly realized that outsourcing the ‘face to the business’ to a third party may not be in their best interest. Look for more creative, on-site and integrated solutions as organizations integrate a complete workplace solution into their delivery models.”

Heating up: Populism and protectionism

Concerns about U.S. immigration reform and the impact of Brexit are driving some IT and business services back to domestic locations, says Stan Lepeak, director of KPMG’s Shared Services and Outsourcing Advisory.

Cooling down: H-1B panic

However, anxiety about potential changes to the H-1B program in the U.S. has been allayed — for now. “The Trump Administration’s early saber rattling appears to have sparked renewed interest in artificial intelligence and robotic processing as ways to reduce cost and eliminate jobs without offshoring,” says Dan Masur, partner in Mayer Brown’s Technology Transactions practice in Washington, D.C. “[But] other administration policies and objectives appear to have eclipsed outsourcing issues, at least for the moment.” Many of the biggest users of H-1B visas were already increasing their American hiring prior to the last election.

Heating up: Business-based metrics

One of the biggest changes facing the IT services industry in this period of business transformation is how to quantify services. Contracts are shifting from traditional input or transaction models to those built on business metrics andresults. “We’ll soon see a move from traditional arrangements — like FTE models — pushing beyond convoluted outcome-focused metrics and into the heart of the client companies with business-linked metrics,” says Snowdon of HfS Research. “We can expect more deals to focus on specific outcomes measured by business metrics.”

Client expectations are rapidly evolving. HfS analysts are seeing client engagements begin with a particular business challenge, with prospective vendors asked to tailor a solution to them. The result is an increase in consultancy-led engagements, which carefully design solutions for the customer.

Cooling down: IT services industry growth

Secular forces have driven the outsourcing industry into significant deceleration. The results of the second quarter of 2017 have yet to be announced, but the top 20 publicly traded IT services companies saw 2.1 percent year-on-year organic growth in the first quarter, according to the Everest Group. “This is the lowest growth number in the last three years, and represents an industry that is witnessing significant pressures due to digital technologies, pervasive automation, new business models, and immigration-related concerns,” says Everest Group’s Arora.

The top five Indian IT companies have experienced seven straight quarter of growth deceleration with a forecast growth rate of less than seven percent over the next 12 months, according to Arora. The key will be to evolve from arbitrage-based models to those built for digital transformation, which will require all providers to spend capital on new capabilities.

Source:  cio.com-7 hot IT outsourcing trends — and 7 going cold

Why large enterprises are working with smaller IT services providers

I recently had the rare opportunity to have a long, honest conversation about the outsourcing industry with a client of my firm, but not one of my direct clients. We were seated next to each other on a flight, and being trapped in a metal tube at 35,000 feet allowed us to trade opinions and experiences in a way no agenda-driven meeting ever could. I was enlightened.

The client, a deeply experienced applications executive, was in the process of moving his entire application portfolio from a legacy, multibillion-dollar-in-revenue IT services provider to a much smaller provider. And he was thrilled with the new level of service, dedication and quality he was receiving. It had not occurred to me until that moment that this is not an isolated incident.

His rave reviews were for a particular provider, but this same phenomenon is happening everywhere. Small providers like Tech Mahindra, Syntel, L&T Infotech, NTT Data, Softtek, Mindtree, Globant and many others are not only competing vigorously for outsourcing business in the Global 2000, they are winning it! Competition is good for the industry and good for customers. A bigger pool of qualified contestants raises everyone’s game.

Why are big companies working with small providers? What is driving this phenomenon, and why now? There are some old reasons with new twists and some altogether new reasons. Here are the top four:

1. Customer intimacy, dedication and superior service. Smaller providers have used the big-fish-in-a-small-pond argument for decades, but now the benefits are actually making themselves known. It’s rumored that some clients have been taken for granted by their super-large providers, but I think another subtle novelty is at play here. Now that buy-side enterprises have more mature management practices, they can work more successfully with less mature organizations. And these organizations make up for any potential lack of capabilities with hunger, humility and passionate dedication.

2. Near-shore effectiveness. As technology teams are asked to work better, faster and cheaper with agile methodologies, being in the same time zone helps. Having the same socio-cultural references is invaluable for the design and execution of anything that touches the human experience, such as graphical user interfaces, websites and mobile and social applications. Of course, not all small providers are near-shore, but those that are can stake a claim to some high-growth niches that suit them just fine. Those that aren’t are still finding niches to dominate, such as next-generation enterprise resource planning systems and complex, industry-specific applications that never used to get outsourced. It turns out “digital” is big enough for all of us.

3. A leveled playing field. Much like the cloud leveled the playing field for infrastructure services (nobody has an advantage when everything is new), digital has done so for the rest of the industry. It’s much easier to work with a new provider when nobody can claim years of experience, especially if that provider shows a greater willingness to take risks and support your business outcomes.

4. Big companies want what little companies have. If you are used to serving the middle market, then you are used to working with more agility and you are more likely to work on programs that contribute to revenue growth. There just aren’t enough dollars to fund back-office stuff that has little impact on the top line. Small providers have been working successfully with smaller clients for years, and now the big buyers want in on that action. Remember, today’s startups are “born digital,” and they will be the dominant, large companies in just a generation from now.

There are more, equally powerful reasons to consider small providers, but the most powerful one may have been articulated by the executive on that airplane: “I can’t imagine ever going back. They are easy to deal with, they fix their mistakes fast, they know what they are talking about, I sleep well at night, and I’m having fun at work for the first time in years.” What’s not to love?

Source: cio.com-Why large enterprises are working with smaller IT services providers

Smaller IT Services Providers Win More Deals

Many years ago, I had a client—a tough, salty engineer—who had risen to become Chief Operating Officer (COO) of a global Fortune 100 enterprise. He was widely feared by just about everyone. My first meeting with him was rough, and the CIO smiled when I briefed him on my session. He said most meetings with the COO went this way.

But the experience wasn’t all for naught. While in the COO’s office, I noticed a large plaque on his bookshelf that read, “In God we trust. All others, bring data.”

So, for my next meeting, I came armed with charts and with the data that backed up the charts in my briefcase. The meeting went well, and my firm stayed engaged on that transformation project for almost two years. Lesson learned.

My last post, about the gains smaller providers are making in the marketplace, was easily the most popular since I started contributing to CIO.com. It made me a lot of new friends on LinkedIn. Yet I repeated my mistake: I came with anecdotes and no data, which is a particularly unforgivable error, since my company collects and reports on this data every single quarter.

Today, I am addressing my mistake and sharing that data with you:

Source: ISG Outsourcing Index®

As you can see, the numbers support the hypothesis I laid out in my previous post. We track awards worth $5 million or more, and we track them by provider size. The smallest tier includes companies with less than $2 billion in annual revenue. The next tier includes companies with between $2 and $10 billion in annual revenue. And the third tier includes everyone else.

Source: ISG Outsourcing Index®

Our most recent findings show the share of deals won by the smallest providers has risen by 10 percentage points over the past five years, and this segment’s upward trajectory has been sustained and even accelerated a bit in the last two years. Perhaps most telling, as a group, providers with revenues of less than $2 billion won almost 400 more deals last year than their competitors in the group just one tier up.

While this is great news for smaller providers, the data do not tell the whole story. Over this same period of time, the average deal value has gotten smaller while the cost of sales has remained constant, so these service providers are working VERY hard for their wins. But we all know that, once inside a large company, providers find it much easier to expand, so we should expect that, even with lower total contract values, it is only a matter of time before some of these small players begin to graduate to the next-highest revenue band. Even with these caveats, I’m sure you’ll agree the achievement of these Davids in a hypercompetitive field of Goliaths is remarkable.

Source: cio.com-Smaller IT Services Providers Win More Deals

The State of Outsourcing and Operations 2017

Organizations may be struggling to cope with competing priorities, but directives from the C-suite are growing increasingly clear: Executives say it is becoming more important — and often essential — to implement a business model that digitally-integrates and aligns front and back-office operations, while putting customer needs first.

That is the result of a recent HfS Research/KPMG report, “State of Operations and Outsourcing 2017.” The study found that 31% of respondents call aligning front and back-office operations “mission-critical,” with another 48% saying it is “increasingly important.” Not surprisingly, an even larger majority of executives also home in on reducing operating costs as imperative.

The upshot for operations leaders is an eyes-open recognition that the world is shifting as they speak, so they need to pivot smartly to keep up with complex transformations and emerging business models. After all, the number of things a sourcing leader has to contend with has grown exponentially: It’s no longer just about managing a contract and a provider relationship. Instead, it’s about understanding shared services; the dynamics and risks around global labor; intelligent automation; software platforms and efficient SaaS products; how to get smarter about cognitive and self-learning; and the true power of digital to offer a holistic view of customers.

“Operations leaders have to look at the world, and the organization’s growth, and understand how to conceptualize the digital business that can take them to the next level,” says Phil Fersht, CEO of HfS Research, who also emphasizes a critical need to move away from innovation-killing, status-quo-ridden organizational charts.

Operations leaders: Under pressure to shift towards digital integration

The HfS Research/KPMG report clearly found that senior-level decision-makers are putting operations leaders under pressure to change. “There’s a determination to start wrapping the customer into more thinking about business models,” Fersht explains. “They want to flatten organizational structures, get rid of silos and have process leaders thinking more about customer ends. That is dominating a lot of mindsets now.”

According to Dave Brown, Global Lead, Shared Service & Outsourcing Advisory at KPMG, of particular interest in the 2017 study was a clear increase in conversations around the strategy of delivery models and how integrated they are becoming, as companies strive to get to market more quickly. One of the biggest challenges, of course, is how to boost the organization’s ability to do that. Today’s disruptive digital technology, including automation, is enabling companies today to accelerate and be more effective in their integration approach he says — and it is critical to be hearing this now from such a high level in the C-suite.

“This is starting to tell us that senior leadership is beginning to understand the enterprise approach to be able to solve for digital disruptors,” he says.

The “One Office”: Digital experiences combine with intelligent, integrated support

The endgame, say Fersht and Brown, is a “One Office” strategy that replaces the front, middle and back office to create digital customer experiences with an intelligent single office to support it, with automated processes as its underbelly. “In a few months, the lever of automation will become more and more embedded and there will be less talk about a front and back office,” says Fersht. “Instead, there will be more talk about an integrated support operation that has digital capabilities and prowess to enable the organization to meet customer demand.”

The idea of “One Office” homes in on the needs and experiences of the customer as front and center for the entire business operation. The old barriers between corporate operations and functions are eroded and the constraints of legacy IT are limited. Digital organizations can work in real-time to cater to clients, where intelligence, processes and infrastructure come together as one integrated unit, with one set of unified business outcomes — on a unified business infrastructure tied to exceeding customer expectations.

The bottom line is that digital has become the language of business. But while consumers are increasingly digitally sophisticated, many organizations are still beholden to legacy technologies and processes. Operations may need to be dragged kicking and screaming out of the dark ages to support the customer by breaking down the barriers between departments; investing in bringing digital customer experience into all practices; and creating an entwined digital culture across the organization to deliver to the consumer.

A digital underbelly, with automated, predictive and cognitive processes including robotic process automation, digitization of documents and standardization is necessary to support these changes. On the service provider side, says Fersht, there will be “One Office” enablers — or providers who can help orchestrate data and drive human collaboration — as well as a great deal of tech-dominated outsourcing, with startups and consulting firms coming through to support a $7 trillion economy.

Bigger RPA investments requires more training and workforce development

Study results also made it clear that these shifts will increasingly focus on relying less on both lower and higher skilled labor and investing more in robotics process automation (RPA). In fact, close to 90% of businesses now have emerging or increasingly important strategies to make this shift, with companies looking at both automation and cognitive as strategies for the future. And a significant 43% of senior-level respondents said they are looking at RPA as the number one initiative for investment. It is important to note, however, that in many cases only portions of a job function will be automated, leaving the human employee freed up to do more strategic activities. This is good for the employee but will often require different and higher level skills. Identifying employees that can step up and providing training to do so will prove critical.

Further to this point, according to Dave Brown, what is most interesting to note is the increase in emphasis on training and workforce development that is accompanying these shifts toward automation and cognitive solutions. “Clients are realizing that RPA and cognitive-type solutions aren’t the only answer to their problems, that they need to look at things holistically,” he says. “You can’t just deploy an RPA software solution without looking at what it means to the organization and what it means for required skills in the new organization. In addition, what happens to your workforce if you’ve now have automated even entry-level positions?”

It is encouraging, he continues, to see more focus around training and workforce development, given the high degree of excitement and investment in RPA in efforts to digitally-integrate operations.

“I think people are getting that it’s not just about coming in and doing a proof of concept for RPA solution,” he explains. “Instead, what does this mean to our entire ecosystem, including third-party outsourcing? This is a different story than you would have seen twelve months ago.”

There is a huge opportunity for organizations that can keep up with these drastic shifts. But, with so many changes — jobs being created, jobs being eliminated, skill requirements changing, business models emerging — operations leaders need to be ready for the challenge. “We know pivots happening, but companies need to start being prepared for those pivots,” he says.

Source: cio.com-The State of Outsourcing and Operations 2017

What do digital, automation and outsourcing have in common?

Recently a lot has been said and written about two prominent trends: digital and automation. However little has been discussed about the commonalities between these prominent trends and the outsourcing industry.

Digital and automation are two of the most prominent trends influencing the outsourcing industry.

Below are some ideas and considerations organizations may wish to consider before placing emphasis on one versus the other:

  • The organization’s strategy sets the direction: Having a clear understanding of the organization’s strategy and goals will directly determine the linkage between digital, automation and outsourcing. As simplistic as it sounds, a balance between these can be hard to achieve. A good way to approach this is to think digital as the environment, automation as an enabler and outsourcing as a way to deliver services. As part of this approach, organizations will also require higher emphasis in other important pillars such as governance, risk and internal staff skills.
  • Digital is a reality organizations shall not ignore: Service providers are supporting the digital transformation by and large, as it does increase their portfolio of services and revenue. For organizations, the implications of a digital environment to services, if well implemented, tend to be positive. The biggest challenge lies on the organization’s community and clientele. For example, let’s think about the recent trends in retail banking and the opportunities digital will continue to bring with direct positive impact on operational costs. Other industries that may benefit from digital are insurance and telecom, as those have usually higher volume of services and effort associated with their service delivery models. A recent article released by The Economist magazine titled “Tech pundits’ tenuous but intriguing prognostications about 2016 and beyond” provided some mind bogging predictions, including the following: “By 2020, predicts IDC, a third of today’s IT companies will no longer exist in their current form, swallowed up in a wave of mergers and takeovers. And although demand for cloud computing will soar, many smaller contenders will fall by the wayside. Within five years the market will be dominated by perhaps half a dozen global giants, from American ones such as Amazon and Microsoft to Chinese ones like Alibaba.”
  • Automation is evolving rapidly: There is no doubt automation will continue to grow and evolve over the next few years. As service providers opt to automate vs. labor in, commodity services are already in high demand to be transformed through automation. In my latest CIO article I wrote about BPO being renamed as BPA – more can be found by clicking here. In a nutshell, the benefits associated with automated services can help organizations to realize value in a much faster and effective way – while services providers minimize their existing labor risks.       Another important factor to consider is that machines now can “learn to execute” with little guidance and oversight from humans. A very interesting article published by Shivon Zillis provided a very insightful picture of the current state of machine Intelligence across different industries:
    Shivon Zillis<p>Machine Intelligence 2.0</p>
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    Shivon Zillis

    Machine Intelligence 2.0
  • Manage the organizational changes associated with these trends: It is common to see the excitement big transformational trends such as digital and automation bring to an organization. For those who live and breathe change, this might be heaven. For others, this can be a very stressful time in which future is somewhat unclear. As such, organizations should not underestimate the level of effort required to manage changes associated with these trends. The key here is to, from internal clients to service providers and the organizations clientele, monitor and manage changes appropriately so that the organization’s strategy can be adjusted accordingly.
  • The importance of governance and risk management should not be understated: With multi-sourcing becoming more evident and increased regulatory pressures, organizations will continue to need to invest heavily on appropriate governance and risk management practices. Notwithstanding the fact automation and digital are new trends, there is a bit of learning curve for both organizations and services providers taking place. The fact of the matter is that, when determining value for money, organizations should factor in the service providers ability to deliver services while complying with the set organizations’ governance and risk protocols for their relationship. At the same time, organizations shall be able to effectively assess their risk appetite, protocols and reputation so that the desired outcomes can be realized. What organizations should not compromise is their ability to comply with their respective regulatory requirements, as this can have a significant impact to the organizations’ reputation and bottom line.
  • The importance to invest on the organizations staff skills: While organizations invest to enable digital and automation, they should also invest on their internal staff skills and capabilities required to effectively manage and support their transformation. Many times there is a consent this should be considered a priority, however it usually tends to get lost – as it is hard to execute any type of business transformation. If we take into account the organization’s team as a critical element for success, it is imperative that internal staff have the right skills and knowledge to effectively execute their roles going forward. As much as learning while executing is possible, organizations should not place themselves in situations that could represent a higher than normal level of risks or with significant impacts to their clientele. 

The conclusion: This is going to be an exciting year for the outsourcing industry, with great opportunities for buyers and services providers to collaborate and contribute on how to best enable their digital environment, use automation as an enabler to promote services and continue to use outsourcing as a way to obtain and deliver services. Stay put.

Source: cio.com- What do digital, automation and outsourcing have in common?

Fintech outsourcing is a hurdle race?

The growth of fintech shall deal with stringent banking outsourcing regulations which might put burdensome obligations on providers in Italy.

Given the potential impact of outsourcing services in the banking sector, the Bank of Italy issued very specific rules on the contents of outsourcing agreements and obligations that are both on banks and suppliers. These obligations together other general obligations might create a demanding environment for providers. And this happens at the time when Fintech is rapidly growing.

I already discussed about the interactions between Fintech and Internet of Things technologies also in the light of the upcoming implementation of the so called PSD2 European Directive, about the liability regime applicable to blockchain technologies, the most relevant issues in negotiating an outsourcing agreementand insurance outsourcing. But when it comes to banking outsourcing also relating to Fintech technologies, the following shall be taken into account:

Scope of banking outsourcing regulations

The regulations apply only to the outsourcing of ‘important company functions‘ which are those that have a relevant impact on the business of a bank and include the outsourcing of for instance the back office and the information system.

Compulsory contents of Fintech outsourcing agreements

The Bank of Italy regulations provide for minimum clauses that need to be addressed in outsourcing agreements relating to information systems and those include

  1. the obligation on the bank to
    1. prove that the supplier is a ‘qualified outsourcer’ which might create issues in case of Fintech start ups;
    2. keep control and responsabiliy on outsourced activities; and
    3. keep internal technical and managerial competences to be able to insource the outsourced activity if necessary;
  2. the obligation on the supplier to
    1. comply with the security policy of the bank and with privacy laws;
    2. ensure that at all times it is able to provide the required service and to notify the bank if it is no longer able to do so; and
    3. be subject to the notification obligations towards banking authoritiies and their potential audits; and
  3. the obligation to regulate within the contract
    1. data, software and technical documentation ownership with the obligation on the supplier to destroy in any case the bank’s customer data in case of termination of the agreement;
    2. management of security breaches;
    3. service levels;
    4. termination events in case of supplier’s inability to provide the requested service or breach of the service levels;
    5. disaster recovery and back up systems, including continuity plans; and
    6. migration obligations in case of termination of the agreement.

Privacy related obligations

I have already discussed about the impact of the new EU Data Protection Regulation on technology suppliers. But, when it comes to banking outsourcing, the additional tracking and alert obligations that I had addressed in this blog postbecome also relevant.

Sanctions against outsourcers

In addition to the privacy related sanctions that under the new EU Data Protection Regulation will be also against outsourcers, banking regulations introduce sanctions from EUR 30,000 up to 10% of the turnover of the outsourcer. This is a peculiarity as no direct sanctions against outsourcers were provided in the past.

It will be interesting to see the impact of these regulations on Fintech deals.

Source: gamingtechlaw.com -Fintech outsourcing is a hurdle race?