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 The Great ITO Shakeout: How Cloud, Competition and a Maturing Market are Transforming ITO
eNews |
Category: Strategy & Business Case IT Infrastructure & Applications Outsourcing
In the world of IT, Cloud has been the media darling, taking center stage in every conversation and publication. While it's true that Cloud is a major trend in and of itself, its adoption has caused a domino effect in the industry as a whole. The advent of utility-based pricing, in combination with a more savvy outsourcing customer, is dramatically impacting the way IT services are purchased and consumed – with far-reaching ramifications.
Let's take a look at the trends.
In recent years, ITO was a "partnership," characterized by long-term, mega-deals with arduous sales cycles and complex pricing structures. Smaller companies rarely had the breadth to compete. Today, all of that is changing.
"We see ITO morphing into something that's more fragmented, " explained Ben Trowbridge, founder and CEO of Alsbridge, Inc. and author of Cloud Sourcing the Corporation. "Instead of the mega-deal, single-provider contracts, clients are starting to break up deals based on competencies. Two, three or more providers will become the norm."
According to Trowbridge, today's outsourcing client is now well-equipped to manage the complexities of governance in a multi-sourced environment.
"You have to remember that clients are maturing in their use of outsourcing, so they're starting to govern the outcome instead of overseeing every tactical step," Trowbridge explains. "This approach makes managing multiple ITO providers far more feasible."
This new breed of client is engaging the advisor community differently as well.
"Buyers are more informed, they've gone through the process – and service standardization has given them price transparency they didn't have before," explained Chris Pattacini, director of benchmarking for ProBenchmark, Alsbridge's benchmarking division. "Rather than coming to us to identify what and how to outsource, clients are engaging us to benchmark existing deals to make sure they're not only getting a good price but are maximizing the value of that relationship."
Although opinions vary on where the market will go or what will happen next, one thing is certain: the world of ITO as we know it today will never be the same. Gone are the days of ‘an IT partner for life;' in are the days of multiple, smaller, shorter contracts with a variety of specialized providers. India-based outsourcers are expanding their service portfolios beyond applications and programming to provide more traditional ITO services at significantly reduced rates. A more mature client base is taking a new approach to governance, managing by outcome and benchmarking to ensure they get the greatest value from their combined service provider partners.
Do Benchmarks Produce Cost Savings?
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Category: Benchmarking IT Infrastructure & Applications Outsourcing
Price benchmarks are used to ensure multi-year outsourcing transactions remain competitive over the life of the outsourcing agreement. Contractual price benchmarks are often triggered by the "third-party" benchmark clause found in most outsourcing agreements. These clauses provide the client with the opportunity to benchmark their services, but often client objectives aren't aligned with the purpose of the clause.
Some organizations view the third-party benchmark as an "easy" way to achieve cost savings. In reality, the third-party benchmark clause is designed to ensure that the price-performance of a service is market competitive, but the clause and the associated benchmark activity do not in and of themselves guarantee cost savings. If the outsourcing market was perfect, half of the time third-party benchmarks would reveal that the vendor's price was competitive. Because of this, clients solely seeking to reduce costs are often surprised when the benchmark reveals that the vendor's price is competitive – and therefore no price adjustment is necessary. Instead, clients seeking ways to lower their outsourcing spending should look at alternative approaches that focus on three main areas: reconfiguration of the services, reduction in consumption, or modification of service levels.
This article explains the issues that have led to the trend away from third-party benchmarks and reasons clients today are seeking new ways to “benchmark” their transactions that are much more collaborative and transparent - and don't require the execution of the third-party benchmark.
All Your Questions about Offshoring, Answered
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Category: Strategy & Business Case IT Infrastructure & Applications Finance & Accounting Services...
Q: What is offshoring?
PM: Offshoring is just the latest wave of globalization - but with a particular focus on business services. In previous phases of globalization, technology and liberalization have allowed an increasing range of commodities and products to flow more freely around the globe.
 Benchmarking Your Global IT Enterprise
eNews |
Category: Strategy & Business Case IT Infrastructure & Applications Outsourcing
Internal IT departments often have cost structures very dissimilar to current or typical market pricing packages. Outsourcing providers package services in infrastructure "towers" that are typically separated between mainframe services, server management, storage area network (SAN) support, network management (voice and data), help desk and applications development and labor categories.
At one extreme, budgets for an IT enterprise may be no more than a single column of costs in support of all aspects of IT, applications and infrastructure services combined. Sometimes it is broken into two groups of cost: infrastructure services and applications, but rarely is it broken into the noted service towers that may be compared to outsourcing providers' services. It is integral to know where you are coming from to understand where you need to go. Cost segmentation is integral to the benchmarking process. DO NOT underestimate the comprehensive effort placing your existing costs into market comparable "buckets."
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