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NextGen IT Outsourcing: Is it the Beginning?

IT outsourcing has undergone tremendous changes over the years, and with enterprise customers digging deeper for that extra value and IT vendors looking at innovative service offerings, the industry is in the midst of yet another transformation. A big one this time

Of all things it has resulted in, a prominent change has been organizations’ growing hunger for transformation. As businesses worldwide dream of makeovers and transformations, largely led by new technologies, their expectations from IT vendors has also skyrocketed.
For years, IT outsourcing was seen as a way of procuring cheap resources and gaining operational efficiencies. Not anymore. Shrinking IT budgets and the increasing pressure to align technology with business outcomes is pushing organizations to dig out deeper value out of outsourcing relationships. The inability on the part of the service providers in meeting client organization’s demands leads to non performing contracts. This is a scary realization that many service providers are waking up to. It is now an accepted reality that the old and traditional sourcing models are not going to work anymore and it is time for the next generation IT models to take over.

Conversations are moving beyond the traditional cost objective and what enterprises want to know from their IT vendors is if they can enable business transformations, working together as a partner. The emphasis is on adding strategic value and that is a lot more than merely reducing the IT spends. “Sourcing has seen some dramatic changes in the past few decades,” says Rajeev Suman, Senior Analyst, Pierre Audoin Consultants (PAC), a global market research and strategic consulting firm for the software and IT services industry. Traditionally, the motive was to attain cost benefits and the outsourcing providers focused on cost minimization on a time and material model. With outsourcing models gaining maturity, it then moved to fixed price arrangements with some element of gain sharing and risk sharing commitments thrown in from service providers.

Today it is a whole new ball game. The advent of disruptive technologies and enterprises’ growing desire for business transformation is driving the services landscape to a new level of maturity where service providers are expected to be partners enabling end-to-end transformations for their clients. The ownership is moving into the hands of IT vendors and they are expected to assume risks and throw some skin in the game. Hence we are seeing sourcing models being linked to business outcomes. “The suppliers are looking for end-to-end transformational deals thus taking the whole IT landscape from the CIOs to manage it themselves. Delivery of services is now done via global delivery network,” adds Suman.