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”Outsourcing must step up and deliver what it has promised for so long”

Digital, cloud, big data and analytics, “consumerisation” and other innovative information technologies are catalysts for the transformation of all kinds of organisations. How well those organisations harness these technologies is now determining who wins and who loses.

IT is now being used to:
– inform strategic, critical and key decisions
– differentiate goods and services and their delivery
– define relationships with customers
– drive performance.

That means we need to change the established approaches to how we manage and source IT services.

Increasing Complexity

It is a complex picture with many organisations still worrying that they spend too much on IT and are not getting the services they need. Yet these concerns cannot be a reason for delay in grasping new opportunities.

The picture is further complicated by the evolving IT sourcing landscape. It started with Outsourcing 1.0, the “Monolithic Age”, when organisations outsourced all or most of their IT to one provider. The next stage was Outsourcing 2.0, the “Multisourcing Age” in which the monolithic agreements were broken up between multiple vendors, with some insourcing and extensive offshoring. This resulted in significant additional complexity, particularly in integration across service boundaries.

Now new technologies have made this even more difficult by bringing in Outsourcing 3.0, the “Integration Age”.

All that adds up to a lot more complexity to manage and the need to think differently about sourcing IT services.

Accept Accountability

While most organisations expect to continue and even increase the extent to which they rely upon outsourcing, many are taking more control. They feel they have relied too heavily upon their suppliers and have not taken enough accountability and responsibility themselves for making sure the right services are delivered. There is now no escaping the fact that the buck stops with the customer, more precisely with the IT function.

In practice this means many organisations are looking at their operating models and thinking far more critically about the things they need to control and do very well themselves. IT is coming out of the back office to join the business on the front line to help shape new products and services and new ways of delivering them. This requires people who understand not only IT but also the business and the markets in which they operate.

Finally organisations are thinking far more strategically about service integration because to harness the opportunities which new technologies bring, it is critical that services run effectively and can be changed at pace, regardless of whether they are insourced , outsourced or multisourced.

Simplify as Much as Possible

Clients aim to transform their IT so that it delivers twice the value for half the cost. Simplification lies at the heart of that strategy. A simpler approach means faster change and allows the business to focus on a smaller number of more important and challenging tasks.

Organisations are also starting to distinguish between commoditised services where saving money is the priority, and change and innovation services which need to be managed more for quality and effectiveness. Historically too many organisations have missed out on the benefits of commoditisation because they have failed to standardise, believing that their businesses needed special services and service levels. Now increasingly standard services are the default, with bespoke services only allowed where there are real and substantial reasons to differentiate. This is being driven in part by the cloud solutions, which are provided largely off the shelf with scope for configuration but little room for bespoke solutions.

It is easier to standardize arrangements when undertaking a major outsourcing, but it is also important to think about retrofitting standards to existing arrangements.

Industrialise Innovation

During the outsourcing process, innovation is one of the benefits that is talked about most, but once the outsourcing has taken place many organisations complain that the promised innovation is never delivered. What is interesting is that suppliers complain just as much.

Given the competitive environment, those promises of innovation now need to be delivered. As few, if any organisations, can deliver the necessary innovation on their own, most will need to work with their suppliers. So organisations need to be clear what they are looking for and what their priorities are. This gives suppliers something to focus on and makes it more likely that their insights and proposals will hit the mark. They also need people in the organisation who are prepared to engage and become internal advocates.

For some organisations innovation requires not just IT transformation but business transformation – so they may need to look beyond their IT suppliers and appoint transformation partners to drive that work.

Drive Collaboration Hard

However none of this will happen unless suppliers and their client organisations work together effectively. There are hard elements and soft elements to collaboration, and most organisations tend to focus on the hard elements, such as ITIL processes, RACI models, and contractual provisions (service obligations, service levels, dependencies and supporting performance regimes). All of these are important, but true collaboration needs additional ingredients, the soft elements.

When we help clients to design and create their supplier ecosystems we focus first on defining what we mean by collaboration; what are the behaviours which we expect. These defined behaviours set the standards, and provide guiding principles.

The second ingredient relates to incentives. Hard incentives are needed (service credits, re-earn, re-allocation) but soft incentives (marketing support, active referencing, personal awards) carry more weight.

This, though, will only get you so far. The ecosystem needs to be actively managed by people with the necessary skills. Done well, this makes a real difference.

So to thrive in this competitive IT driven world, outsourcing must step up and deliver what it has promised for so long. That means accepting accountability, simplifying, industrialising innovation and driving collaboration hard.

This is a shortened article originally appeared in Outsource magazine Spring 2014.