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Industry Insight

Outsourcing: a new era descends

Companies are looking for flexible contracts, reduced costs and the agility to adapt to new technology trends.

South African firms' rapid adoption of cloud technology will crown new kings and queens of technology outsourcing, and consign others to the history books.

This became clear in a recent survey, conducted by T-Systems SA in partnership with ITWeb, which looked at current ICT outsourcing trends.

The most startling finding? Almost one-third of the respondents will be assessing alternative ‘as a service' arrangements and service providers in the next 12-36 months. Less than half plan to continue with their current outsourcing arrangements.

In a technology field characterised by multi-year, long-term partnerships, for some players this is a worrying trend. But for others, it creates unprecedented opportunity. On a global scale, it means over the next few years, half of the $300 billion annual ICT outsourcing industry may be up for grabs.

The survey showed that firms are looking for flexible contracts, reduced costs in their core IT operations, the agility to adapt to new technology trends with ease, and the ability to fulfil any of their requirements with ‘as a service', hosted tools.

The findings

The top three factors when considering one's ICT partner are price (69%), clearly defined transformation roadmaps (16%), and alternative procurement models (11%). Against a soft economic backdrop, and with increasing pressure to ‘do more with less', it is little wonder that price is the clear winner here.

When it comes to contract negotiation, the pricing structure once again surfaced as the most common concern, at 56%. This is followed by service quality and availability (47%), and liability and risk (40%).

The impact

So, what does this mean for traditional ICT outsourcers looking to remain relevant in a new, hyper-competitive era?

Firstly, as clients become more digitally savvy and continue to transform their businesses, suppliers and partners will need to adapt to their individual requirements – customising services that are wrapped inside highly engaged partnership models. Often, the lines between in-house technology staff and outsourced service provider will melt away, as a single, virtual team rallies around tasks.

ICT outsourcers will have to completely re-imagine their financial models.

Secondly, despite some level of uncertainty around data security, privacy and sovereignty, clients are, in general, clamouring for cloud-based offerings. Outsourcers will need to provide a broad array of hosted services, in a variety of arrangements (such as private cloud, locally hosted, offshore, etc). They'll need to form new partnerships with other cloud providers in order to assemble a comprehensive suite of cloud services.

Thirdly, with the keen focus on price, ICT outsourcers will have to completely re-imagine their financial models. The focus will be on delivering true business value, and deriving the financial rewards only when the client achieves success.

And finally, outsourcers will need to step up and accept more of the risks associated with new technology investments and innovations, or the risks associated with critical service outages. The era has passed in which these risks are shouldered by the client alone.

New way forward

I believe these survey findings show how urgently outsourcers have to reinvent their business models, as traditional arrangements quickly lose relevance in the digital era.

Inflexible, multi-year contract structures place too high a risk on the shoulders of the client, and stifle their efforts to embrace digital transformation and take advantage of new cloud, mobile, social and big data opportunities.

Clients should look towards new outsource contracting models that challenge the status quo and enable clients to break free from ‘lock-in' – doing away with fixed-term contracts.

Outsourcing firms need to have confidence in themselves, and their platforms and partners, in order to deliver this kind of guarantee to the customer. And in the future, as the competition heats up, offering customers flexibility and choice will be merely the "ticket to the game".

New outsourcing contractual models should elevate the ICT provider and customer engagement to a new level, where incentives are aligned to ensure true business value is delivered, and the risks associated with digital transformation are minimised.

So, when selecting a technology partner, it's important to look for one with deep experience in transforming, modernising and operating mission-critical cloud environments. However, that on its own is not enough: partners must be willing to commit to a fairer type of contract, where they have "skin in the game" and will work tirelessly to ensure the cloud environments are kept up-and-running, powering the business.

The cloud revolution may have changed the rules of the technology outsourcing game, but it hasn't taken away the need for outsourcing altogether. Expect new outsourcing partnerships in the future, innovative contract structures, and some bold new players.

Outsourcing is dead, long live un-outsourcing!


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