Traditional outsourcing is about cost-cutting. The name of the game was to take away the pain of delivering an organisation’s entire IT operation for less money, or an improved service for a similar outlay.
For the outsourcing supplier, this meant running things lean and mean; sweating all available assets. Suppliers became experts at maximising the value of a contract by economies of scale, spreading resources and ideally applying best-practice tools and processes. Contracts quickly went from three to five years up to every seven to ten years. But the inflexibility caused by this focus on driving down costs meant these relationships inevitably became unsustainable.
Cost is always a factor in the decision making process, but a recent survey conducted by Cap Gemini and IDC found that the top three reasons for outsourcing were: focusing on the core business; reducing costs; adapting to market conditions. Furthermore, the survey underlined a continuing shift towards outsourcing focussed on building lasting relationships, or partnerships, which add real business value.
Cost has always been an unhealthy differentiator and the outsourcing market has quickly caught up after a spate of costly broken contracts. So what is driving this movement away from cost differentiation? The IT industry is no stranger to the concept of convincing customers it can add value, aligning itself to business issues, and this model is now increasingly at the heart of a new generation of outsourcing deals.
By replacing cost with a value play - focussing on meeting business requirements - an outsourcing relationship is transformed into a partnership with significant long-term benefits for both parties. With value as the key, your suppliers must recognise that they cannot do everything and it is unwise to try and do so. The ability to manage a contract proactively, "flexing" as the business is transformed, is proving far more attractive than end to end capacity. Like cost, end-to-end deals should be consigned to the outsourcing history books, replaced by more complex, multi-sourcing deals that seamlessly meld best of breed providers to ensure the service bundles technology skills, transformation and outsourcing to achieve the desired results.
Ultimately, justifying this outsourcing approach is a combination of tangible benefits, such as measurable improvements in service quality and cost, as well as more qualitative benefits such as customer satisfaction through stability of service.
If successful, this new breed of ‘transformational outsourcing’ can bring a step change in an organisation very quickly. By letting suppliers become integrated into the very fabric of your company, a partnership can go from strength to strength.
Partnership is a well-worn phrase in the technology industry, but it permeates every aspect of this new breed of outsourcing model from contract governance to chief-executive level shared learning sessions. This board level awareness is testimony to the impact these relationships are now having on the business.