As senior management look at areas where costs can be
reduced, IT projects are inevitably coming under increased scrutiny
and outsourcers have to prove their worth more than ever,writes Sanjiv Gossain, UK managing director ofCognizant
Technology Solutions.
The evolution of IT project delivery
IT delivery has changed greatly over the past 15 years. When the
outsourcing industry first developed, businesses looked for IT
service providers solely to reduce costs. As the global delivery
model grew, outsourcers began to take advantage and used lower-cost
regions to deliver some of that cost benefit.
In the short term these relationships were a success, but anyone
involved in outsourcing projects at that time will admit that
limitations soon became apparent, as it became evident that long
term, large, monolithic outsourcing contracts may have delivered
cost savings but were failing in terms of agility, productivity and
responsiveness to the business, and could not handle the
transformation needed.
Complex and transformational projects, requiring greater skill
and co-ordination between the client and provider just weren't
suited to this early model, so naturally it evolved. Rather than
doing all work offshore, onshore offices to provide better local
contact and expertise, were set up to support more complicated
projects, and over time the long-term business impact of this
combined model became another major driver of outsourcing
decisions.
However, as a result of recent shifts in the economic landscape,
the outsourcing industry is having to adapt once again as cost
shoots back to the top of the agenda.
Changing attitudes
What does this mean for IT chiefs and their outsourcing
partners? Well, opinion is divided. A survey by sourcing company
Equaterra, suggests that the recession has not reduced UK
businesses' demand for outsourced services. Conversely, TPI, a
consultancy which tracks large financial outsourcing deals, says
that it has seen a decline in the number and size of deals since
2007.
From our perspective, we've definitely found that companies tend
to slow down decision making in times when cost pressures really
come to the fore. They re-evaluate and realign their investment
from projects that prioritise long-term transformational benefits,
to those with immediate cost savings. The ideal scenario of course
is to plan IT projects that can deliver both.
What is certain is that companies now want much tighter control
of any IT projects they embark on.
Back to basics
Given the current challenges, there will be some companies who
come to the conclusion that it is in their best interests to keep
IT projects in-house, where they believe they can keep a tighter
rein on things. But is this the right approach? Certainly, some
CIOs may feel more comfortable with their IT delivery under one
roof, but the recession brings sharply into focus the original
reason they considered outsourcing in the first place - to reduce
costs.
However, cost is only one of the issues and the ability to share
risk is also a key benefit. The current climate means that IT
providers have never had a greater incentive to deliver to their
promises. They are aware that projects need to produce tangible
cost savings and business efficiencies in a short time frame;
otherwise the partnership is likely to come under scrutiny. And
when the going gets tough, it can help to have a rationalised
supplier base where one company is responsible for delivering
projects according to terms set out in a service level agreement
(SLA). This cuts down on the complexity of the relationship and the
time spent managing it, freeing internal resources to focus on
other priorities.
We've all seen over the last few months how quickly market
conditions can change, and how quickly these fluctuations can be
reflected in IT requirements. Crucially, outsourcing providers can
deliver flexibility to scale projects up or down in line with
demand, something in-house teams find difficult.
IT partners can also be relied on to provide valuable
consultation, insight and specialist industry knowledge (often
gained from providing IT solutions to companies in similar
situations). And whereas early outsourcing contracts saw work
simply 'thrown over the wall', companies should now be looking to
work with third parties to use this insight to help determine and
plan IT strategy.
Companies need partners who can demonstrate real thought
leadership, with the expertise to identify where cost savings and
efficiencies can be realised most effectively, meaning efforts
aren't wasted elsewhere. The best service providers will combine
this strategic thinking with cost reduction - moving processes
offshore to generate immediate savings and then transforming them
over time to achieve new levels of performance.
Outsourcing partners increasingly offer knowledge-based BPO
services outside the traditional areas of IT or ancillary support,
which may not have been previously considered for outsourcing.
These tasks are typically domain specific and require staff who are
highly qualified, professional and mature.
The wide availability of skilled graduates in regions such as
India or China have made these tasks possible, and the wage
differential between onshore and offshore means that the cost
advantage is maintained. However, the real benefit that this global
talent provides is the realisation of new outcomes which were not
previously possible. For instance, take an insurance company
investigating fraudulent claims. With onshore staff, it wouldn't
look at cases below the value where the investigation cost would be
higher than the fraud itself. With offshore labour this threshold
can be lowered, allowing more cases to be investigated and
identified as fraudulent.
Today, measuring return is still the most important factor when
embarking on new IT projects. Service providers should work with
organisations to establish goals and outline timeframes for their
completion. It's now almost standard for SLAs to be agreed as part
of contract negotiation, setting benchmarks in areas such as
savings to be generated, productivity and efficiency, and outlining
the planned approach to business process transformation.
Businesses worried about potential risk can also ask IT
providers for a transaction-based pricing model. Rather than simply
committing to work on a project for a certain period of time, this
guarantees a set price for a set outcome - putting the onus on the
outsourcer to perform the task in a timely and efficient way.
Conclusion
With most national economies experiencing the sharpest fall in
consumer and business confidence for almost 20 years, the business
outlook is understandably uncertain. With this in mind, all
investment is under the microscope and IT projects need to prove
they can make a long term contribution while providing a
shorter-term cost advantage.
It is natural for outsourcing projects to come under increased
scrutiny, but the best service providers will have already adapted
to meet the demands of the new world order - marrying the
traditional priority of cost reduction with the business
transformation required to drive performance in the years ahead.
Businesses should in fact use the downturn to forge closer, more
tightly-defined relationships that can reap benefits, both now and
in the future.