The world - and specifically the world of technology - now talks about time in terms of Internet years, such is the pace of change. Technology, as we all know, has cycles, with architectures, hardware, software - and even concepts - reaching the end of a lifecycle and inevitably going the way of the golf ball typewriter.
For some time the industry debated the pros and cons of integrated solutions, best of breed and other scenarios, followed by the swing to the integrated outsource solution - or the mega deal as it has been termed. A one-company approach to everything technological.
Which raised more debate points from the sceptics and the evangelists alike: put everything under one safe roof versus the danger of putting all your eggs in one basket.
In South Africa we have seen outsourcing contracts signed for amounts of R500 million per year and more. Internationally deals of $1 billion to $5 billion over a five-term are not unheard of.
That's putting an awful lot of money, resource and power into the hands of third parties. It has also served to marginalise the responsibility and control of internal IT executives and staff, often turning highly qualified people into little more than administrative functionaries for the outsourcing company.
We have researched local and international markets and believe that the concept one source outsourcing is coming to the end of its lifecycle: the age of the mega deal is dying fast.
It's not just us suggesting that one-source outsourcing relationships are dead. The influential UK-based Cutter Consortium Outsourcing Survey showed recently that 83% of British outsource customers had indicated they were currently reviewing their one-source outsource relationships for a more selective vendor approach.
That has to be a major alarm bell.
The days of a one-source vendor providing everything necessary to address an organisation's IT needs are dwindling fast.
In South Africa, we're seeing many companies - some of whom have burned their fingers courtesy of some pretty bad third-party decision-making - taking a retroactive view of outsourcing and are reverting to core decision-making for IT being brought back in-house thus allowing business to select vendors based on their expertise and services ... the main reason being that in-house accountability and responsibility is clearly seen as the more sensible route to profitability for the majority of corporations.
Here's a quick evolutionary tale: historically - in the pre-mega deal era - users employed the skills required to run their operations. Then they began to examine such concepts as facilities management. This in turn led facilities management and IT companies down the path of the mega deal option.
In the 80s and 90s we saw large operations promoting the "we can do it all" scenario. The timing was great: as distributed environments became more and more complex (and with available skills at a premium) customers thought the outsourcing concept was the panacea to all problems.
Indeed, it could have been; however, as many companies will confess, onesourcing does not always work to the benefit of the customer - in fact, for most customers the reverse has occurred. In many cases, the original contract tends to be based on the business process and IT in place at the time.
In most businesses change is inevitable, and this is where the outsourcer starts raking in the profits. The customer has little if any choice (due to lock-in clauses) but to pay for these changes. For most corporations, changing an outsourcing partner at renewal time is difficult enough, thus the outsourcer relies on this for the renewal process.
It's a version of the "golden handcuffs" game played by corporations and their key executives. Recent surveys have shown that up to 97% of contracts are renewed due only to lock-in clauses and the unease of the transition to another vendor.
Things are starting to change and although in South Africa the outsourcing trend may only be peaking, there is already powerful evidence of growing customer dissatisfaction with their onesource outsourcing partners.
So what are the options? Multi-vendor and or, selective vendor sourcing is complex, and perhaps five years ago customers were treading on unfamiliar territory with regards to measuring services and service levels. Fortunately, there has been a concerted effort on the part of many major corporations to educate and train their remaining internal IT operations and commercial employees to measure outsourcing contracts. With this experience, companies have come full circle and are now using this expertise to look at in-house operations with a more selective smartsourcing approach.
So what to consider before making that quantum leap to what is now being termed as smartsourcing?
Some of the challenges to keep in mind are the number of vendors involved, contractual arrangements: if they are tied in tightly, then so is the company, which will affect the complexity (and risk) associated with successful delivery of services and the back-out ability for the organisation if there is again non-delivery.
Obviously, the more vendors involved, the greater the likelihood of vendor issues. Decisions about the number of vendors to involve, and the structure of their relationships must be based not only on a specific project's technical requirements but also on the maturity of the acquiring organisation.
Many companies may consider the initial third-party integrator approach while transitioning and make use of their services for ongoing service management. An integrator is not a panacea, since active oversight (including monitoring of subcontractors) is still needed, but it does simplify the problem. The bottom line is that acquirers must create healthy relationships with and among their suppliers - and maintain them - to ensure their own interests are preserved.
Once a healthy balance among vendors has been achieved, the challenge is to maintain it. If vendors become too tightly coupled, their relationship is no longer healthy. Instead of working co-operatively to meet the needs of the acquirer, they become exclusionary, positioning themselves to prevent other vendors from gaining access. Providing benefit to the acquiring organisation is no longer the main objective. Instead, maintaining the status quo or growing the supplier business becomes the focus. The acquirer suffers because the vendors lose their competitive-edge, taking fewer risks and expressing less creativity.
A year ago, hardware and software marketers calling on prospects were told that the enterprise had an outsourced partner in place ... which meant de facto that prospect's name was scratched off the list.
Those same people are now being asked to come along and present their products and services anyway - a clear sign that in-house IT staff want control back in their own hands.
As the cycle becomes complete, a new breed needs to step in to take its place: Will that be a repeat of the good old days, when IT decision-makers had queues of salesmen outside their doors offering the latest widgets?
Hardly: while those decision-makers have had enough of remote-controlled environments run by third parties, they aren't exactly clamouring for the Revenge of the Smouses.
We believe the approach many customers are now considering is a smartsourcing multi-vendor option.
This puts customers back in control of their assets and they need only outsource those operations that are not key or critical to the business ... or which they choose to outsource.
Smartsourcing will see the contracts being set up in a multi-vendor, best of breed basis.
We're already seeing this take shape in South Africa with a number of organisations looking to a more multi-vendor solution. Customers will now be able to retain core systems and only engage with vendors on the basis of expertise and delivery rather than an onesource-all, outsource-all approach.
Naturally the smartsourcing approach requires management and project management resources; however, much of this can again be done in-house or this resource can be insourced.
There is a small caveat: co-operative vendor relationships may slowly diverge, causing a split between vendors. Poor communication, misunderstandings, or a failure to resolve open issues can cause this divergence. Many of the problems that plague competitive vendors begin to surface when this type of ill will develops.
Regardless of the scenario, the success of any multi-vendor engagement is highly dependent on the acquiring organisation to architect the right relationships and nurture them in an environment where they can be successful. Not only are the days of sole-source relationships gone, so are the days when IT executives and managers could totally rely on one vendor to bring them success.
By Lynda Odendaal, CEO, NSS
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