Why CIOs can’t wait to renegotiate their outsourcing contracts

Rapidly changing business and technology needs are forcing IT leaders to renegotiate their IT outsourcing contracts and rethink their sourcing portfolios sooner rather than later. Here’s how to do it.

As business needs—and the new technologies required to support them—evolve ever more rapidly, outsourcing contracts signed just a year or two ago are already getting stale. That’s why Mayer Brown business and sourcing technology partner Dan Masur is advising companies to revamp their outsourcing deals right now to not only access new options, but also to cut significant costs.

“There have been dramatic changes in how services are delivered, and those continue to evolve. New, non-traditional players have emerged offering different products and services. Digital strategy is now a strategic priority for every business. CIOs have to think about how they’re going to build things like mobility, big data, analytics, and cloud into their existing sourcing arrangements,” says Masur. “You can’t tell the business, ‘Sure we could do those things but our outsourcing deal doesn’t expire for another three years. We’ll get to it then.’”

Specifically, there are five areas—which Masur has dubbed the “Five ‘R’s”—that companies should examine to uncover where their current sourcing deals may no longer be serving them well:

  • Re-Solutioning. There are a number of new ways to deliver IT services today. Cloud computing tops the list. But the use of autonomics—machines that are trained to perform tasks typically performed by humans—is also growing. Another emerging trend is the rise of “service utilities.” In financial services, for example, service providers are able to deliver higher quality and lower cost solutions to processes like anti-money laundering. And such options will soon be available in other industries. Masur recently renegotiated a deal for one bank to include such new delivery mechanisms, saving the company millions. “They could have waited until the end of the contract term but there was no reason to,” Masur says.
  • Re-Sourcing. Now is a good time to consider alternative providers to perform some or all IT services, implementing a best-of-breed approach. “Take those things that can be performed better or cheaper by someone else and move it there, or use the competitive tension that comes from multisourcing,” Masur advises. “Years ago who would have thought of Google or Microsoft or Amazon as players for services. But there are now these enormous companies with very different business models and lots of smaller companies with targeted offerings.”
  • Restructuring. Companies should consider organizing their outsourcing deals not around technology service levels, but rather things that matter to the business. Harvard Business School marketing professor Theodore Levitt has been credited with saying, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” The same holds true for outsourcing, says Masur. “Insurance companies are moving from agreements structured based on the number of IT devices or FTEs required to perform back-office work and moving to agreements where they pay by the number of annuity applications processed or claims administered,” Masur says. “They’re moving to the things that are important to the client not the provider.” Such outcome-based models give IT services customers greater control over what they’re buying.
  • Retrofitting. Mobility, data analytics, social, Internet of Things—there’s a growing list of technologies increasingly important to bringing the business to market that may not be in existing outsourcing deals. “In some cases, a company may decide to seek out new deals focused exclusively on that, but in most cases it doesn’t make sense,” says Masur. “You have to examine existing deals and figure out how to layer them in.”
  • Reconciling. This is the sort of recalibration that has typically gone on during the course of an outsourcing deal. Customers go back and renegotiate existing terms in areas where price or performance are out of line or where the business needs have increased or lessened.

4 ways to manage potential challenges when renegotiating an IT contract mid-stream

There are a number of potential impediments to reworking IT deals mid-stream—some within the client organization and others built into outsourcing contracts. But they can be managed says Masur.

  • Change management. “Most companies don’t focus enough on this,” says Masur. “Change is scary; it creates uncertainty.” Both outsourcing customers and clients get used to the status quo. If changes are made to contracts, equal effort must be made to manage the change in people’s work lives and processes or the new deals will fail to deliver.
  • Availability of Internal talent. IT leaders need to determine whether they have the ability to perform the kind of cost-benefit analysis to renegotiate existing contracts. If not, they’ll need to bring in third parties. Likewise, if moving to a multisourced model, they need to make sure they have the skills in-house to manage the new model.
  • Negotiating leverage. Outsourcing customer must figure out how to get and keep it. “How you do these things may depend on nature of the relationship with your existing provider, how willing and capable you think they are, how cooperative they’ve been in dealing with change, and how well they’ve been performing to date,” Masur says.
  • Financial considerations. Transition expenses, termination charges, and other sunk costs can potentially erode the potential cost savings of reworking deals. “Many contracts are structured in a way that makes it difficult to do this,” says Masur. IT leaders can, however, renegotiate things like termination fees and build other sunk costs into new deals which have significant savings associate with them.
    “There are challenges and impediments [to renegotiating existing outsourcing deals],” says Masur. “But there are lots of ways to address and minimize them. There’s nothing that can’t be overcome if you are aware and build them into the strategy.”

Source: CIO.com-Why CIOs can’t wait to renegotiate their outsourcing contracts by Stephanie Overby

Should you outsource your project management?

Evaluating whether or not to outsource your company’s project management functions can be challenging. Before making this potentially risky leap, you have to assess if this is a good move for your business, keeping in mind that what works for your business today may not work in the future.

There can be many benefits to outsourcing your company’s project management functions, with equally as many pitfalls. There aren’t any one-size-fits-all solutions based on your industry, type or size of business. Just as you would with different project management methodologies, consider the risks and rewards carefully and take the time to thoroughly evaluate why outsourcing project management may or may not be a good move for your organization.

Factors that might motivate you to think about outsourcing project management

Low staffing levels. Depending on the size of your business, you may not have sufficient staff in place to set up and support a project management office (PMO). Many businesses simply do not have adequate staffing levels to dedicate one or more employees to solely focus on projects; often existing resources may already be overextended, and only able to focus efforts on daily operational duties.

Shortage of highly experienced staff. Whether you have a small, midmarket or large company, your internal staff may not have the specific project management experience and/or training you need to effectively take a project from inception to closeout. In fact, the nature of the project may necessitate very specialized expertise.

If you’re a home-building contractor, for example, you might require engineering project management skills that are different from software developers tasked with implementing a new inventory management system for your business. In this case, it may make sense to seek external vendors with the appropriate technical project management expertise to assist with your unique projects.

Cash flow constraints. This can be an ongoing concern for businesses regardless of type or size. As budgets shrink and competition grows, businesses often struggle to find the capital to fund projects. Finding additional financial resources to hire specialized staff like project managers can be difficult, especially when those resources are already earmarked to support operations. In this case, it may make sense to find vendors that offer project management services on a per-project basis.

Business model decisions. You may choose to outsource your project management functions as a result of your business model. If your projects are of the one-off or ad-hoc variety, then hiring internal project management staff may not make sense. It may be less cost-effective and more of an administrative burden to hire, train and retain an FTE.

What are some of the benefits of outsourcing project management?

Cost structure can be lower. All project management vendors work differently, and offer different pricing structures depending on their level of services, experience, business model and overhead, as well as consideration for their target markets. It may take some upfront work to solidify details and obtain quotes from these vendors prior to determining if any given vendor is a cost-effective option for your business. And don’t forget to factor in the longer-term factors as well (such as the cost of maintaining FTE PM roles in-house).

Higher level of experience and competence. Project management is a highly specialized area of knowledge and skill that requires significant attention to detail, as well as the ability to see the broader scope to ensure strategic business alignment. In addition, people with the ability to effectively manage multiple resources, juggle hectic schedules, deal with difficult situations and keep within scope are in high demand, yet are hard to find.

The upside to being able to find people with these skills, is their ability to provide high-quality project management, enabling businesses to execute projects successfully while allowing your internal staff and management to focus on what they do best. If these skills are not available internally then outsourcing to an experienced project management vendor may be the best option when compared to the cost of hiring a less experienced internal project manager.

Objectivity. External project managers often bring a level of objectivity that may not always be present with internal staff, for various reasons. This objectivity can be of great value when it comes to the actual project outcomes and deliverables, and ensuring all business requirements are met.

Clarity of focus. When properly executed and managed, projects facilitated by an experienced outsourced PM can allow opportunities for businesses to achieve clearly defined expectations with single-minded focus and less internal friction. This of course assumes the right amount of senior management support is in place.

What are some of the risks of outsourcing project management?

Relationships/buy-in. When it comes to buy-in from internal stakeholders, outsourcing may be an obstacle. At times, when a business chooses to outsource project management functions, the external PM can run into issues with a company’s internal staff members and/or management consciously or unconsciously being uncooperative or less trusting. This can make the successful execution of a project more challenging, and possibly position a project for failure. This does not mean outsourcing will not work; it means there may be additional work required to gain the trust and buy-in from key stakeholders.

Lack of awareness for business objectives & operations. Let’s face it, institutional knowledge can sometimes move mountains. When the appropriate and specific project management expertise exists within an organization, it allows for the potential to more easily execute and manage projects successfully due to existing business and operations knowledge. As a result, internal project managers (that have the required skills, of course) may have an advantage over an external project manager.

Exposure of sensitive company information. The risk of a potential data breach can exist with both internal employees and also when external vendors gain access to sensitive information. This risk can be mitigated through various means with external vendors. It is critical that your business clearly and completely defines policies and processes, and communicates and implements measures to address these security issues.

Reliability and accountability. When outsourcing a project management function, ensuring the outsourced vendor or PM is fully committed to all aspects of the project is key. Outsourced PMs are not internal stakeholders, and they are not impacted by the business outcomes of the project; therefore, it is critical to ensure reliability. Clearly defining and setting expectations and goals is critical to the successful completion of any project. You may even want to consider linking pay to performance, as well as addressing professional conduct, ethical behavior, time commitments, scope and other factors into any agreement.

Also consider your company culture when making the decision to outsource project management. Does your organization outsource any other critical roles or functions? Is there already a healthy balance of onsite and offsite employees that are used to working on virtual teams? Take a close look at your internal company culture to gauge if employees will be receptive to working with an external PMO.

What options are available, and will they work for your business?

There are many vendors offering outsourced project management expertise. Finding the right one for your specific project(s), whether based on the project size, complexity, nature, duration or even your type of business can be challenging. Ensuring the vendor has the expertise and resources and understands your needs and expectations is crucial to the success of your projects.

When evaluating your options, one thing should be clear: Make sure the decision fits your company culture and that outsourcing allows all project outcomes to effectively align with the business goals and strategic objectives. Also, keep in mind what works for your unique business today may need to be re-evaluated in the future as both the internal and external business environment evolve.

Source : CIO-Should you outsource your project management? by Moira Alexander

Indian IT services market grew 7.1% in 2014, growth to accelerate through 2019: IDC

The Indian IT services market grew 7.1% to reach $7.7 billion in 2014, according to consultancy IDC India, helped by higher demand for cloud infrastructure and cloud-hosted applications and a renewed focus on infrastructure projects.

The consultancy expects growth to accelerate to about 11% in rupee terms from 2014 to 2019. In 2014, the total IT outsourcing services market grew at 6.8% during the same period while support & training services grew at 6.5%.

“The expanding start up community and increasing technology adoption by Small & Medium Enterprises (SMEs), who favour OPEX as against CAPEX model of IT, is creating healthy demand for hosted infrastructure, hosted application, managed and datacentre services. The market for these services will continue to grow at rapid pace over next few years,” Vivek Gautam, research manager of IT services & software, of IDC India, said in a statement.

Among industries, IT spending in banking and financial services and retail grew fast, the consultancy said.

“New banking licenses awarded by RBI, increasing technology adoption NBFCs and microfinance institutions pushed the demand for IT services. While in Retail vertical emergence of e-commerce continues to be a key growth driver as they are forcing traditional brick and mortar players to embrace technology at wider scale,” the consultancy said.

ET has already reported that technology firms are chasing the deals the have arisen due to the new banking licenses and from retail firms looking to compete in online sales.

IT customers slow to embrace outsourced DevOps

IT organizations are increasingly interested in adopting DevOps models to deliver applications faster, better and cheaper to the business, but they’re not inclined to look to their IT service providers for help with these efforts.

Fewer than 10 percent of application services agreements in 2014 required DevOps-based delivery, according to research by outsourcing consultancy Everest Group. That’s an indication that enterprises are not yet convinced that their outsourcing partners can play a meaningful role in adopting the new method of delivery, according to Yugal Joshi, practice director at Everest Group.

Move to DevOps model important trend in application services

Everest Group research suggests that moving from an agile development model to DevOps is the single most important trend in application services, but most IT organizations are doing so using their own internal resources rather than leveraging their outsourcing arrangements.

“Buyers are still figuring out DevOps for themselves as it’s not an easy thing to do. Many stakeholders across the value chain need to be aligned to make this work, and in a typical enterprise it is easier said than done,” Joshi says. “However, buyers are indeed experimenting with DevOps internally in projects and proof-of-concepts, though most of this work is handled by the buyers themselves or by leveraging some short-term capacity staff that are order takers rather than change managers.”

Demand for application services consulting is on the rise. Two out of three application services deals inked in 2014 included consulting services, according to Everest Research. And the market for applications services grew by 4 percent in 2014, outpacing the 3.4 percent overall growth of the IT services market, according to Everest’s 2015 annual report on application services.

IT service providers say that they possess the capabilities to drive DevOps transformation with a number of them rebranding their application and infrastructure consultants as “DevOps consultants,” according to Joshi. “Service providers are not really worried, as they are well aware of the glacial pace enterprises normally move to adopt anything new,” Joshi says. “However, as enterprises increase their pace of adoption of new technologies and processes, service providers need to become more alarmed and proactive in assisting the buyers. Unlike earlier times where service providers can rest back for the buyers to reach out to them, they need to be more proactive now.”

The onus is on outsourcing companies to prove their worth in the DevOps space, beginning by demonstrating their end-to-end capabilities. “Given most buyers might be working with providers for specific tasks, service providers need to communicate their capabilities for this piece,” says Joshi. “Moreover, providers need to demonstrate that they are willing to work with different service providers to collaborate and achieve the needed outcome.” Those providers with service integration experience are best positioned to take advantage of DevOps transformation deals.

As for customers, now may be a good time to take a leap of faith and begin experimenting with outsourcing partners on DevOps work for low-risk applications in order to figure out how best to align different service providers. “Earlier concepts of service integration will be very beneficial here,” Joshi says. “Buyers should understand that though a service provider can play an integral part in this journey, the broader change management has to come from within. Service providers should not be tasked to drive this change management as this has a lot of business risk associated [with it].”

Source: channelworld.in-IT customers slow to embrace outsourced DevOps by by Stephanie Overby

INSIGHT: Outsourcing services vs. software – Is there really a difference?

“There’s little doubt agencies of all sizes are fingering their worry beads, even as clients increasingly look for outside help.”

As we highlight the topic of outsourcing, there’s little doubt agencies of all sizes are fingering their worry beads, even as clients increasingly look for outside help.

More big media agency-of-record accounts are up for review than at any time in living memory.

Yet simultaneously, the share of labour budgets for external services and consultants in fast-growing areas such as marketing analytics can reach 25-30 percent, according to Gartner surveys.

As the lines between inside and outside help get smudged out and redrawn, another – perhaps more insidious – question comes up: Is software the ultimate consultant? What’s the difference between external services and software, anyway?

The fast-twitch distinctions between agencies and marketing software, low-margin analysts and high-margin code, are rapidly disappearing.

Of course, when it comes to economics, software looks more enticing than services. Software gross margins average 75 percent vs. 40 percent for services, according to PwC.

And the IAB estimates that 20 percent of digital advertising is executed by one machine talking to another.

As this number grows, it is logical to assume humans in advertising will exit stage left to make way for machines.

Yet Gartner predicts the number of math graduates entering marketing will double by 2016. Presumably these people can be trusted to calculate the ROI of their own career, so what’s going on here?

Inspired by their investors, software startups trip over themselves to show how hands-free they are. Meanwhile, many solutions are sold to customers who either staff up to support them or pay agencies to run them, making data scientist the “sexiest job of the 21st century,” according to the Harvard Business Review.

The software providers themselves have hardly succeeded in keeping humans off their books. Many of the more interesting companies are primarily managed services, from providers like Epsilon/Conversant and Experian to ad server Trueffect.

Even quintessential software-as-a-service (SaaS) shops like Google quietly offer on-demand professionals to support higher-end products, such as Google Analytics Premium and rich-media creative units.

And the fastest-growing teams at digital marketing startups are customer care representatives, who are essentially consultants.

If software is really getting more self-reliant, requiring less human intervention, then we would expect to see a shrinking investment in people. Ninjas at the top of their game, in particular, should be chop-chopping human capital.

Yet exactly the opposite is happening: The top third of marketers spend twice as much as the bottom third on both software and services.

The most successful digital marketers are at least 35 percent more likely to lean on outside services for functions like analytics and media planning.

Meanwhile, service companies are selling more software. For example, Deloitte Digital packages its own predictive models under the brand name nACT.

Global holding company Publicis Groupe acquired mobile ad solution RUN, part of performance-marketing platform Matomy, and was rumoured to be flirting with ad tech platform Criteo.

Meanwhile, rival WPP claims to have invested more than $1 billion in technology, much of it gathered under its ad tech umbrella Xaxis.

Xaxis shows the forces at work. Calling itself a programmatic media and technology platform, it offers both engineers (280 at last count) and engineered platforms. In the past year, it acquired contextual ad-tech company Crystal Semantics and spun up a data-management platform called Turbine.

Meanwhile, when the agency phased out its proprietary demand-side platform last year, Xaxis Global COO Mark Grether said, “the DSP is becoming a commodity.”

Here we are at the heart of the matter: commoditisation. As artists, cookbook authors, and software engineers have all noticed by now, commoditisation is what the Internet does best. It excels in making efforts obsolete.

No sooner does a category pop up – say, tag management or portfolio-based keyword bidding – than its margin starts to drift downward.

Providers and practitioners who do not relentlessly add features and skills find themselves doing business for free. We all teeter on a wave of looming obsolescence.

What does the threat of commoditisation mean for the software vs. services continuum? It means that there is no end state for software; as soon as it is implemented, it starts going out of style.

Engineers are needed to improve it. And the same goes for services. No sooner do marketers spin up a new SaaS solution than their enemies across town are doing exactly the same thing.

To compete, they need to invest in new skills to replace their former edge, now not so sharp.

These skills can be built up in-house or they can efficiently be outsourced to agencies, which specialise in what we might call “skills on-demand.”

And we are back to a cycle of more: more software requiring more services, which require more software to provide more services. Pretty soon, you’ve got what you could call a hybrid model.

When Rocket Fuel acquired [x+1], part of the strategy was reportedly to round out the former’s managed-service model with [x+1]’s SaaS offering.

A few months later, the company’s CEO said he’s “somewhat indifferent” to whether a customer uses its own or Rocket Fuel’s services.

What he’s describing may be a more functional model: one where the customer opts for managed service, self-service, agency-supported, or all of the above.

Outsourcing – whether to agencies, software, bots or whatever the future holds – will remain what it has always been: an on-demand tool to perform a required task in an environment that frustrates planning.

Source: computerworld.co.nz-INSIGHT: Outsourcing services vs. software – Is there really a difference? By Martin Kihn – Research Analyst, Gartner

Innovation, innovation, wherefore art thou?

Outsourcing buyers and providers have long suffered from an expression barrier when it comes to innovation. But the digital economy is about to change that. Enterprises can no longer afford to dismiss their providers’ new ideas and capabilities. The time is now for buyers to say what they mean and capitalize on provider investments.

For years, innovation has been a sensitive and largely misunderstood subject in the outsourcing industry. Buy-side enterprises insist on it, stipulate it in their contracts, and complain bitterly when they don’t get any. Meanwhile, service providers meet their quota of ideas each quarter, hiring armies of talented PhDs to re-invent the pharmaceutical supply chain, for example, only to be summarily dismissed by the client as “too risky” or “not at all what we meant when we said innovation.” It’s been a discouraging cycle for both parties, to say the least.

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The trouble herein lies in what a former colleague and influential IT thinker Peter Weil calls the “expression barrier.” It is the inability of the demand and supply side of IT services to understand each other. And, in this case in particular, I believe blame most often falls on the client.

As my seventh grade English teacher used to say, the truth is in the grammar. You can’t demand something new and untested—the definition of innovation—and then ask “where have you done this before?” every time the service provider offers an idea. To parse the terms, what most outsourcing buyers have really been looking for is continuous improvement or the application of best practices. And, while these are worthy goals unto themselves, they are not true innovation.

This tired dynamic is about to change.

With the emergence of digital, cloud, social and mobile technologies, clients can no longer afford to turn away their service providers’ ideas. In fact, they would be foolish not to harness providers’ investments in innovation that, in all likelihood, dwarf their own. Let’s face it, succeeding with emerging technologies is an essential survival strategy for providers. Outsourcing buyers that fail to take advantage of such investments (which are being made on their behalf) are leaving money on the table and jeopardizing their near-term competitiveness. If nothing else, they need to be crystal clear in how they articulate the level of risk they can tolerate and what they really want when they say innovation, otherwise they lead their providers on a wild goose chase.

Service providers, in the meantime, are caught between a rock and a hard place. They must trudge ahead with their quarterly innovation offerings or suffer the slings and arrows of the client. Insisting on innovations that their clients deem too risky is a frustrating exercise with the potential to damage the relationship—but insist they must. If they don’t, the day will come when the client blames them for having fallen behind. Despite the fact that they will always get the blame for lack of progress—even when their client may the biggest barrier—smart providers know they will not get ousted for proposing too many new ideas. They may, however, have a hard time holding onto their existing business if they don’t keep their clients—at the very least—up to snuff with new technologies.

Make no mistake: unlike most other technological revolutions in our lifetime, today’s advances are more about competitive advantage than operational efficiency or cost reduction. Seizing the moment requires companies and their outsourcing providers to engage in open dialogue, experiment frequently, fail fast, and collaborate to bring differentiating solutions to market more quickly than all the others.

I’ve been waiting for this moment my entire career, and I can’t wait to watch it unfold.

Source: CIO-Innovation, innovation, wherefore art thou? by Esteban Herrera

Why the IT outsourcing model is moving away from manic multisourcing

The prevailing IT outsourcing model has shifted from a single provider approach to managing a host of best-of-breed vendors. But the pendulum may have shifted too far in the direction of multisourcing as IT leaders now try to get a handle on their outsourcing portfolios.

Outsourcing to multiple IT service providers has been the predominant trend in the industry for some time as IT organizations have sought to increase leverage with their partners by employing a best-of-breed approach. But managing a stable of dozens of vendors has proven difficult and costly, and outsourcing clients are beginning to rethink the extreme multisourcing approach, says Bill Huber, managing director of IT outsourcing consultancy Alsbridge.
“Traditional multisourcing might well be characterized as ‘anything goes.’ Even a standard ‘best-of-breed’ approach often reflects a series of disparate and uncoordinated sourcing decisions,” says Huber. “What’s been lacking is an overall architecture for services integration and evolution, with capabilities being added and [removed] over time.”

But a new multisourcing approach may be emerging with some IT organizations setting up a smaller number of strategic outsourcing relationships and delegated the oversight of niche solution providers to those key partners. Here Huber discusses this evolving middle ground for multisourcing.

Why are clients moving away from traditional multisourcing arrangements?

Huber: We’re seeing an overall maturation occurring across the industry. At a high level, this trajectory can be described as moving from the extremes of ‘uncoordinated,’ which prevents taking advantage of any synergies, to ‘centralized,’ which stifles agility, flexibility, and adaptability. The new multisourced models are designed to be an optimized balance of both.
New innovations are occurring quickly with improved point solutions frequently replacing others that are only slightly older. A model that can accommodate the integration of the new capabilities on a flexible backbone has become critical. That backbone is, in effect, the primary services framework into which the smaller, potentially shorter-term components need to plug and play.

What new approaches are being developed and what are their benefits?

Huber: In a new multisourced model, a limited number of key providers comprise the services backbone into which niche or point solutions interface. [One] difference in this model is that the contracts are designed to more easily flex to accommodate changes in how the pieces will fit together and how the services will evolve. And I don’t mean Additional Resource Charges (ARCs) and Reduced Resource Credits (RRCs) here [the traditional method for managing outsourcing pricing that accommodates volume fluctuations for the in scope of services], but rather something more fundamental that is designed in the context of business outcomes.

In addition, the governance function must include a very strong service integration and management capability, and must have senior participation at a high enough pay grade to make serious risk and reward decisions.

Is this just a new take on the ‘one throat to choke’ model that once dominated the market?

Huber: The ‘one throat to choke’ model is an archaic procurement term and reflects an adversarial philosophy where the assumption was that the only way to ensure favorable treatment from a vendor was to have a large enough wallet to leverage spend aggregation and to wield a big enough stick to apply the threat of onerous penalty and termination clauses.
Digital is destroying many of the advantages of scale. Today, speed, collaboration, and risk management are the critical differentiators, in concert with keeping your brand relevant. The more sophisticated models that we see now focus on balancing those elements through transparency, analytics, networks of relationships and a relentless fostering of innovation.

What are the challenges of this new multisourcing model for clients and providers?

Huber: The challenge is that many companies and managers at companies have a false sense of control, and they are reluctant to let go of control. [They] still tend to fall back on traditional models to lock down contracts and micromanage the wrong things.

Change is always hard, and it is happening unusually fast right now. Most individuals are only partially aware of the degree to which everything will change in terms of processes, objectives, tools and jobs. Many organizations simply don’t have the right leadership to navigate the implications of change and to build new models that will be more resilient in rapidly changing times.

Source: CIO.com-Why the IT outsourcing model is moving away from manic multisourcing by Stephanie Overby

Why you’re probably selling IT wrong: Gartner

Most resellers continue to be successful at targeting IT departments, but fail at pitching to nimble line of business customers, such as marketing and HR departments.

This was the thrust of a presentation from distinguished Gartner analyst Tiffani Bova, who packed out two sessions during Microsoft’s Worldwide Partner Conference in Orlando. Bova is one of the star attractions at Microsoft’s Australia Partner Conference later this year.

Telling the packed house “I want to make you uncomfortable”, Bova outlined 10 top trends in IT sales for the channel and how to capitalise on changing buyer behaviour.

There’s no secret that line-of-business buyers are controlling an ever-increasing share of spend – many CRN readers will have heard Gartner’s predictions about that shift, such as the prediction that the chief marketing officer will control more IT spend than the CIO by 2017.

It’s not about forgetting the IT manager, but learning to sell in dual ways. Bova said there are now “two speeds of IT” and that solution providers “have to run at both modes”.

“One is traditional – think marathon runner, long-term projects, longer sales cycles, big-ticket items, selling to IT, sourcing and procurement, refreshing my data centre. I am redeploying an ERP solution or CRM or BI. It’s heavy. It’s long. It’s intense. It’s scope of work. It’s delivery organisations. It’s keeping the lights on.”

She said that 65 percent of the IT budget today “gets spent on that side of the house”.

“Mode two is all about agility. Speed to market – I see it, I try it, I buy it. It doesn’t work, I try something else. Once I realise that’s what I want, I want to deploy more broadly.”

She told the audience, “I don’t want you to hear ‘cloud/non-cloud’.”

“If you refresh a data centre, and go from on-prem to standing up infrastructure-as-a-service, for example, that would still be speed one. It is still all about keeping the lights on. I want you to think about innovation and transformation spend, that’s what happens in mode two,” said Bova.

The channel is “very comfortable in mode one” but struggles with mode two. And it’s not just sellers: most of the CIOs that Gartner deals with are “super comfortable” in speed one. However, they are being pushed by their CEO to get into speed two.

Australian partners were enthusiastic about Bova’s session.

Ronnie Altit, managing director of Sydney-based Insentra, said: “The biggest thing I took out of the presentation is the number of channel partners that will struggle to make the transition as customers move from mode one to mode two.”

Startups have an advantage over established IT suppliers. “If you are going to start now, start at mode two. Those who are in mode one have got a big transition ahead of them that I think they will struggle with. She absolutely nailed it in terms of what the market is doing. It was probably one of the most insightful presentations I have had at WPC.”

As a first-time attendee at the Microsoft conference, Altit said he was impressed that WPC “wasn’t so much about the product, it was about how partners can become successful with Microsoft”.

Noel Ervine, director of Melbourne-based Emerging IT, told CRN that he was grappling with the mode one/mode two issue in his business. “I can see we need to push mode two but I can see myself and my colleagues in mode one, we need a blend.”

Stephen Parker, VP of market research at Rhipe, formerly NewLease, said it was about hybrid selling, and that both modes have their place.

“Every time there is a change in our industry, every new guy has to say, ‘You are at the bottom left and we are at the top right. That’s the only way to get noticed. Actually, over time, it all merges and that becomes the new normal.

“Salesforce used to be ‘no software’ but increasingly they integrate into your back end. As they get into the enterprise, they have to integrate with your on-premise resources.”

He agreed with Bova that cloud did not necessarily equate to mode two. “Just outsourcing to IaaS is still mode one. You have just outsourced and it is still the same infrastructure, the same model. You just don’t own the hardware.”

Source: Why you’re probably selling IT wrong: Gartner

How 3D Printing Changes The Economics Of Outsourcing And Globalization

3D Printing is a revolution that changes two important economic equations – insourcing/outsourcing, and the globalization/localization equation.

It tips the balance between insourcing and outsourcing of manufacturing in favor of insourcing. And it tips the balance between globalization and localization in favor of localization.

In the pre-3D Printer era, outsourcing – the transfer of a number of business activities to third parties either at home or abroad – allowed companies to improve efficiency, cut costs, speed up product development, and focus on their “core competencies.” It helped American companies address the destructive forces of globalization; that is, the intensification of competition and the price and profit erosion that followed it.

For some companies, outsourcing was the difference between staying in business or throwing in the towel.

But outsourcing had a “side effect:” disintegration and fragmentation of the supply chain. This invited new competitors into the industry, undermining pricing power and profitability of companies pursuing this strategy.

In the PC industry, for instance, outsourcing invited the entry of Chinese competitors like Lenovo, which ate Hewlett-Packard’s lunch—a company which had been outsourcing aggressively its PC manufacturing.
There’s a simple reason for this side effect: outsourcing is feasible only if each activity can be separated from other supply chain activities.

Manufacturing, for instance, can be outsourced only if it can be separated from product development, branding, marketing, distribution, and after sales services. The same is true when it comes to outsourcing marketing or distribution, and so on.

This means that as more and more activities are outsourced, the supply chain turns from a single integrated process – performed within the boundaries of traditional corporations – to a fragmented and disintegrated process, a collection of separate and disjointed activities, performed across several independent subcontractors.

That’s what makes entry of new competitors into the industry easier, resulting in intensified competition, shortening product cycles, and squeezing return on invested capital.

In the 3D Printer era, most of the advantages of outsourcing are diminished or even eliminated altogether, as additive manufacturing allows these companies to perform all these activities in house when needed and as needed.

At the same time, additive manufacturing helps companies maintain and reinforce control of the entire value chain, avoiding the side effects of outsourcing.

Add the transportation cost savings and the benefits of customization, and bingo! Outsourcing is history, and jobs come back to the US from Mexico, India, China, etc. That’s a blow to the globalization of manufacturing.

To be fair, additive manufacturing is a slow process with constant returns to scale, no match for the speed and the scale of traditional manufacturing. But expect that to change, as 3D becomes main stream and money pours into the 3D Printer technology to make these printers faster – the case with conventional printers.

And, provided that politicians do not kill this trend with unnecessary regulations.

Source: Forbes-How 3D Printing Changes The Economics Of Outsourcing And Globalization by Panos Mourdoukoutas

ISG Outsourcing Index™: 2Q, 1H Contract Volumes at Record Highs

Contracting activity in the global outsourcing industry surged to all-time highs in the second quarter and first half, even as the annual value of those contracts declined, according to the latest market data from Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

Data from the ISG Outsourcing Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show a record 451 contracts were signed in the second quarter, along with a high of 754 agreements in the first half. Despite the steep rise in activity, second-quarter ACV, at $6.2 billion, was off 7 percent from the very strong second quarter of 2014, but rose 24 percent compared with the lackluster 2015 first quarter. For the first half, ACV came in at $11.2 billion, down 14 percent from the prior year, dragged down by one of the slowest first quarters in the last decade.

The sharp increase in activity comes as buyers continue to negotiate more deals at lower value, not only to take advantage of specialized services offered by smaller, niche providers, but also to avoid being locked into large, long-term contracts at a time when a wave of new technologies and operating models is causing significant disruption and uncertainty in the services industry.

“The market continues to push into new territory with record volumes of global outsourcing adoption. In fact, three of the past four halves have logged the highest counts ever,” said ISG President and Partner John Keppel. “We’re seeing a clear and continuing trend toward more deals at lower value. From the start of the recession in 2008 until now, counts have nearly doubled, while ACV has risen only modestly. Technology has changed significantly during this period, which saw the beginning of the Digital As-a-Service revolution and its continuing pervasive impact on the global services market.”

Added Keppel, “It’s particularly noteworthy that ACV rallied from a dismal first quarter to pass the $6 billion mark without any significant aid from mega-relationships this quarter. The second quarter had only two deals with ACV greater than $100 million, a low not seen in many years. Clearly, it’s the size of the demand, not the size of the deal, that is driving this market.”

The value of new-scope contracts, totaling $3.8 billion, bounced back from the lackluster first quarter of 2015, but was down 11 percent against the prior year. The value of restructured contracts, at $2.4 billion, also rebounded, rising about a third over the prior quarter and pulling nearly even with the same period last year.

By domain, the value of information technology outsourcing (ITO) contracts, worth $4.8 billion on an annualized basis, was up sequentially from the slow first quarter, but fell against the strong second quarter of 2014. At $1.4 billion, business process outsourcing (BPO) value didn’t quite match the prior two quarters in which ACV exceeded $1.5 billion. At the half-year mark, however, total BPO ACV rose 4 percent over the prior year, due to stepped-up activity in industry-specific BPO and contact center work.

By region, the Americas achieved a record number of contracts this quarter and its highest quarterly ACV since the first quarter of 2012 – $2.8 billion, up 11 percent over the prior year. A model of consistency, the region has now surpassed $2 billion in ACV for six consecutive quarters. The healthy U.S. market had its best second-quarter ACV since 2010, and Canada and Brazil also contributed to the region’s strong performance. Results were driven largely by ITO, which had its strongest quarterly performance in three years, surpassing $2 billion in ACV for the first time in that span. BPO, which pulled back slightly from its strong performance in the first quarter, was driven by contact center work, which accounted for about a third of ACV and deal volume. Smaller outsourcing verticals, such as Travel and Transport, Healthcare and Pharmaceutical, and Retail, led the charge as the region’s top growth industries in the quarter.

EMEA, meanwhile, rebounded from a disappointing first quarter to record $2.8 billion in ACV in the second quarter and exceed the $5 billion mark at the half. The value of new scope awards more than doubled that of restructured contracts in the first half. ITO surged 44 percent over the first quarter, but was down 9 percent versus last year. The region was led by the U.K., which saw ACV climb nearly 20 percent for the half, both on strong contracting activity and on the back of large contracts awarded by Deutsche Bank and the BBC. ACV in the DACH sub-region, likewise, benefited from large transactions, while Eastern Europe climbed both on contract counts and ACV. Among industries, Financial Services and Energy were the top performers.

Asia Pacific also rebounded, albeit slightly, from an anemic first quarter, but this year’s results couldn’t compare with a very strong first half last year, which was driven by a number of large awards. The ITO market this year is being driven by apps-related deals, which accounted for 70 percent of ITO contracts in the second quarter. BPO is ahead of last year at the half-way mark, boosted by a more active second quarter. Geographically, the region was led by India, which achieved a slight gain in ACV and a 26 percent increase in deal counts for the half, compared with a weak performance from the rest of the region, most notably Australia and New Zealand. The region’s three largest outsourcing industries – Financial Services, Telecommunications and Manufacturing – were off from their first-half pace last year.

“Looking ahead, we’re bullish on the short term, expecting year-over-year growth in the third quarter,” said Keppel. “Longer term, the picture is murkier, as the market adjusts to a wave of emerging technologies, a move toward greater digitization, and entirely new operating models. The focus will shift to more transformative work rather than largely on costs. While cost management will remain important, most of the new spending will be prioritized on revenue-generating activities. Service providers that are able to augment their traditional services with new cloud, automation and digital capabilities will be in a much stronger position to succeed than competitors that try to wring every last dollar out of declining service models and markets.”

Now in its 51st consecutive quarter, the ISG Outsourcing Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media. For more than a decade, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance.

The results of the 2Q 2015 Global ISG Outsourcing Index™ were presented today during a conference call and webcast for the media and analysts. To listen to an audio replay of the call and view presentation slides, please visit http://www.isg-one.com/web/research-insights/isg-outsourcing-index/.

About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience and global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 900 employees and operates in 21 countries.

Source: prnewswire-ISG Outsourcing Index™: 2Q, 1H Contract Volumes at Record Highs