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ICT outsourcing landscape undergoing seismic shifts

By Suzanne Franco, Surveys Editorial Project Manager at ITWeb.
Johannesburg, 30 Nov 2016
The exchange rate is a key measure on acquiring technologies that are critical to business success.
The exchange rate is a key measure on acquiring technologies that are critical to business success.

A recent ITWeb survey - Sourcing ICT in a Cloud World - conducted in partnership with T-Systems SA, revealed that two thirds of organisations are increasing their IT budgets, despite the challenging macro-economic climate that has forced cost-cutting in almost every other facet of business.

"Spurring this increased spend is a drive to invest more heavily in the digital assets and tools that will enable faster transformation - as companies digitise processes, enhance customer experiences, and (in some cases) entirely reinvent their business models for the digital age," comments Mpumi Nhlapo, Head of Solutions and Demand Delivery at T-Systems South Africa.

"These new investments are being channelled into areas like cloud computing, big data, enterprise mobility, social tools, automation, and machine learning. In stark contrast, the portion that relates to traditional IT infrastructure and maintenance budgets is shrinking."

Emphasising the changing nature of outsourcing is the survey's statistic that almost 60% of companies feel contract flexibility is very important. Only 4% said that it is not important at all.

A new deal

T-Systems has introduced a new approach, which they call 'un-outsourcing' - doing away with multi-year contracts that keep clients locked-in.

According to Nhlapo, the new approach addresses what the survey revealed to be the top three most pressing concerns for clients when entering into outsourcing agreements: pricing structure (56%), service quality and availability (47%) and liability and risk (40%).

"Across every area of the technology landscape, outsourcers will be forced to operate in far more competitive environments, no longer able to rest on their laurels with contracts where customers carry the majority of the risk. Essentially, they'll need to become true partners that enable customers to achieve their business imperatives," notes Nhlapo.

It seems highly likely that fixed-term contracts will soon only exist for the more commoditised areas of one's IT portfolio - the likes of desktop and network support for instance, he adds.

Tellingly, 32% of survey respondents said they are actively assessing alternative 'as-a-service' arrangements and service providers, which reflects the way that competition will heat up in the coming months and years.

Cloud trends

While cloud adoption is certainly at the heart of any organisation's digital transformation journey, there is still a strong sense of hesitancy when it comes to public cloud platforms. The survey revealed that most common cloud strategies being pursued are either off-premises private cloud or on-premises self-managed private cloud.

Nhlapo comments, "As the industry clarifies the benefits of Private, Hybrid and Public Cloud for the customer, their sense of security is fundamentally allayed by the following: where is my data residing? Is it secure? How well is it being managed? Management services of the off-premises private cloud (virtual private cloud) vs on-premises self-managed private cloud is the raging debate, as business pushes for more services that can be easily accessed."

More than half of respondents cited that their organisation have a developed sourcing strategy, while 15% have no sourcing strategy in place at all.

The majority (66%) of respondents indicated that their organisation's budget allocated to outsourcing projects has increased within the last three years.

"Most organisations are experiencing a reduction in CAPEX budgets," Nhlapo continues," and have a rather stable or increasing OPEX budget. This is very typical of the industry and the resulting need for solution providers to enable customers to maximise operating budget and move new projects to an outsourcer."

He also believes that the upsurge of cloud solutions as a business is a savvy platform for customers to utilise their OPEX budgets in a more creative manner.

Managing IT resources becoming even more complex

The survey also revealed that just under half (49%) of respondents have had an outsourcing service provider for 5 years, and 19% between 2-4 years, 26 % only recently between 1-2 years.

Cost emerged as the single most important factor when selecting an ICT service provider (69), followed by ability to provide services on an 'as a service' basis (46%), and experience and track record (43%).

"In a country that is dependent on sourcing ICT from OEMs that are predominantly international, the exchange rate is a key measure on acquiring technologies that are critical to business success. This places a lot of responsibility on organisations such as ourselves to look to alternatives that still enable our customers despite these challenges," adds Nhlapo.

Looking further into the top criteria, the survey revealed that flexibility, pricing structure, ability to terminate contracts and a clearly defined transformation roadmap are the most important expectations.

"Scope creep is a synonymous tag associated with too many ICT projects," says Nhlapo. "A significant part of the service level agreement [SLA] includes how services are costed against the backdrop of customer experience. As the contract matures, and the demands of the contract expand, the biggest measurement is cost containment."

He adds that customers are now interrogating the details of the contract to fully understand what is actually included in the price.

With regard the respondents plan to ICT outsourcing for the next 12 -36 months, 48% cited they plan to continue their present outsourcing arrangements, a combined percentage of 32% are assessing alternative As A Service arrangement and service providers.

"Based on a study done for T-Systems by Gartner, traditional ICT outsourcing, despite the hype of cloud based options was still at the forefront of many CIO's considerations. This would be expected when taking into consideration, different customer needs and support in addressing ICT needs," Nhlapo concludes.

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