South African companies that want to drive the maximum value out of their relationships with IT outsourcing firms should look towards outsourcing as a way of creating business value and innovation in their technology environments rather than merely regarding it as a way of driving down costs.
That`s the word from Mike Sewell, group executive: outsourcing at Business Connexion. He says that most businesses spend a mere 1-3% of their annual turnover on IT. Slicing that figure by 5% or 10% will have little impact on profitability and business value in most organisations.
"That amounts to polishing marbles. Companies should instead seek out outsourcing partners who can help them to drive innovation and business value in their IT environments," says Sewell.
CIOs and outsourcing firms need to co-operate to find ways of using IT to create business value, for example by enabling new channels to market, streamlining business processes or allowing the company to build closer relationships with its clients, he adds. "Outsourcing should be about getting IT to make a difference."
IT outsourcing is now accepted practice in SA business, and most large organisations outsource at least some of their technology to an external service provider, says Sewell.
Some organisations outsource only selected components of their IT infrastructure and operations, such as application development and support, desktop and network support, or data centre services. Others choose to outsource the running of their entire IT operations and infrastructure to external partners.
"Most businesses recognise that it is best for them to outsource the critical but non-core function of IT to external parties," says Sewell. "The most important benefit is that they are able to focus their energies on their core processes while benefiting from access to world-class IT infrastructure and skills."
Sewell says outsourcing firms add value by exposing their clients to a broader view of the technology world than their internal IT departments can. Vendors have exposure to global best practices across a range of industries while most IT departments have an insular perspective.
Sewell says that another important benefit of IT outsourcing is that it allows companies to move the cost of IT off their balance sheets and turn it into a pure operational cost. Because the outsourcing firm generally owns the IT assets such as hardware and software, the client firm is protected from the risks and costs of investing in new technology that will become obsolete in three to five years time.
Most businesses are now appointing CIOs who understand business needs and demand the appropriate technology to support business processes, rather than drawing them from the ranks of technicians.
"The technology used to deliver a business service or application is becoming increasingly unimportant. What the new-age CIO wants is the reliable delivery of services that improve the business," says Sewell.
Sewell says technology infrastructure is becoming increasingly commoditised and will eventually be delivered using a utility-like, on-demand model.
"Eventually, companies will buy processing power or storage space in the same way they pay for phone calls or electricity, with little regard for what systems their service providers are using to deliver the services."
This kind of on-demand model will allow companies to pay for the capacity that they use rather than needing to invest in infrastructure that is fully used only in peak periods.
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