IT outsourcing industry in good health as customers call the tune

I write lots of articles about the IT outsourcing sector growing and contracting and even stagnating. Most of these articles are a reflection of the sales that are being made by suppliers. But what I am really interested in is are IT outsourcing services improving for the business customers, rather than are the supplier revenues and profits increasing.

Although the two are intrinsically linked, in that better services will lead to more sales, in the current climate with things like pay as you use contracts and cloud based services rather than 10 year mega deals sales will go down even if customers are buying more.

Ashish Gupta, EMEA head of Infrastructure at Indian service provider HCL Technologies, explains why suppliers that offering full transparency and flexibility will win the next wave of IT outsourcing contracts.

IT outsourcing is dead…long live IT outsourcing!

By Ashish Gupta

 “If you believe everything you read in the media, you could be forgiven for thinking that the health of the IT outsourcing industry is ailing at an alarming rate. With boasts of reduced spending in IT across industry as a whole, it can sound as though a lengthy queue is forming to perform the last rites, and to write obituaries for IT services companies. Those espousing this view point gleefully to the decline in the number of fixed-term ‘mega-deals’ in the IT industry in recent years as evidence. So is the IT outsourcing industry really on its last legs, attached to a life-support machine and preparing to draw its final breath?

Paradoxically, the answer in some cases is ‘yes’…but also, more resoundingly, ‘no’. Allow me to explain. A decade ago, the world of IT outsourcing was a very different place. It was an industry dominated by a handful of big-name service providers that held significant power and influence. These organisations made millions by offering services to end-users in exchange for high fees and fixed-term contracts with rigid, inflexible service level agreements (SLAs) often written on the Service Provider’s terms which clients negotiated. At the time, ‘mega-deals’ were commonplace, primarily because the pool of service providers was so limited. As a result, end-users, who were operating in a relatively immature market, were happy to pay top dollar for the associative reassurance that these ‘name’ brands were able to offer.
Today, things are very different indeed. With the market for IT services now more mature in the UK and across certain parts of Europe, the tables have turned and end-user organisations are now the ones calling the shots. Gone are the days of a few service providers dictating terms. Competition has widened and prospective customers are now able to dig more deeply and explore their options before they sign on the dotted line and commit themselves to an outsourcing engagement.

As more organisations have looked to cut costs and increase efficiency in light of fluctuating global economic fortunes, customers have been forced to become much more discerning. Instead of jumping at the chance to pay for the right to partner with a “safe” provider, end-users are becoming savvier and looking for greater  flexibility, transparency and cost efficiency. Increasingly, we’re seeing end-users conduct forensic searches across the industry before they identify an outsourcing partner capable of meeting their specific needs. 
What this means is that, to some extent, the industry experts are right. IT outsourcing as we’ve always known it (otherwise known as ‘traditional’ outsourcing), is dying. However, what very few acknowledge is that in its place, a new, very different approach has emerged, known as Generation 2.0 outsourcing. Where previously the split between end-users and service providers was well defined, Generation 2.0 outsourcers work collaboratively with vendors to identify areas for improvement, and to exchange ideas and thoughts. Similarly, where vendors could once dictate SLAs according to their own priorities, users are now becoming empowered to select service providers that can adapt to their needs. As a result, far greater pressure has been placed on IT service providers to change the way they operate. Today, flexibility and transparency are the watchwords for IT services firms, in the face of stiff competition, and increased customer scrutiny.

There’s no doubt that as the market for IT services has matured, so the demand for the reassurance that a few safe names offer has decreased. This, in turn, has created greater demand for new age providers capable of working with a client and also with under vendors in more specialised outsourcing models, such as multi-sourcing.

So although many would be quick to bury outsourcing the fact of the matter is that the opposite is true. Instead of a lifeless industry, we’ve seen a gradual metamorphosis from the caterpillar of traditional, inflexible models to the flexibility and transparency of the butterfly of Generation 2.0 outsourcing. IT outsourcing as many have come to know it, may well be dead, but one thing’s for sure – newer, more collaborative models are alive and kicking, and changing the world of IT services forever!”