Buyers must face decisions around new risks and opportunities in outsourced IT solutions.
Charlie Bess, HP Fellow, HP Enterprise Services, says the outsourcing industry is facing “a different kind of IT and support environment than what we had just a few short years ago.” Here’s how he describes this new environment:
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It’s a consumer-driven approach to organizations’ needs today. Bess cites those needs as:
- Faster time to value for new business initiatives and requirements
- An option to source services flexibly, ramping up or down with business needs
- Delivery assurance in a multisourced world
- Ever-increasing cost containment on IT spend
- Direction on improving efficiencies and processes
- Consistent service delivery globally
Outsourcing Center interviewed several experts on outsourced IT solutions for their insights into how IT infrastructure and application services are evolving and the risks buyers will face in the decision-making process over the next few years.
Applications
One of the upcoming changes in IT applications will be in licensing. Kevin Schatzle, President, Allied Digital Services, predicts software publishers will get more aggressive in licensing audits to drive transparency in asset management.
Yugal Joshi, Senior Analyst, Everest Group, believes the biggest change in the applications area will be that buyers “will realize that complexity needs to go away from their custom applications. Many have overkilled customization, resulting in high costs to develop and maintain these customizations, which is not acceptable in today’s constant squeezing of IT budgets. Customization also results in provider lock-in.” (Read Eight Biggest Areas of Risk for Buyers.) He says standardized cloud-based solutions can perform almost 90 percent of the function that an on-premise customized enterprise solution can do.
“Cloud computing is a disruptive technology that will require organizations to seriously look at consolidation, standardization, and rationalization,” says Deepak Jain, Senior Vice President & Global Head of Technology Infrastructure Business at Wipro Technologies. Customization will increase transition/migration costs as the cloud model matures.
“Work that today appears extraordinarily complex (such as industry accounting, external reporting, planning, budgeting, forecasting) will begin to move to an outsourcing model in the next two to five years. As more of these core activities and processes become more standardized, it will become far simpler to identify work that is rules based and repeatable and to then separate it from those activities that are truly unique to a company,” explains Don Schulman, General Manager for IBM’s global F&A and SCM business. “In turn, this standardization will enable companies to move these strategic processes to outsourcers.” In the long term, he predicts this will open possibilities for offshoring or a type of hybrid shared-services solution for those processes.
Schulman says the standardization will also enable industry-specific BPO solutions that will require providers to act in a more consultative role and provide industry expertise to their clients. “This will bring significant change in the ability to address specific pain points across multiple business groups.”
Schatzle at Allied Digital Services, says because applications are evolving to cloud-based Software-as-a-Service (SAAS) delivery as well as a shared-services approach, companies that run multiple ERP systems or have multiple divisions will consolidate to a single ERP application with multiple configurations or views, all delivered from the cloud. He advises early-adoption buyers to look for service providers that demonstrate approaches to mitigating risks.
Organizations over the next couple of years will need to decide if they want to go through an upgrade on their existing systems or migrate to a new platform. Others will need to determine if they want to keep running and maintaining their systems themselves or outsource that function. Joanne Olsen, SVP, Oracle Cloud Services, predicts that many organizations will make the mistake of deciding to hold off those decisions, “wondering if they have seen the latest and greatest of what the industry has to offer or if that magic bullet is right around the corner.” She believes those that decide to optimize their systems will be interested in application management in the cloud.
Olsen points out smaller companies will now be able to take advantage of better pricing plans that new technology makes possible including virtualization and cloud computing capabilities. (Read Outsourcing Experts Discuss New Flexible Pricing Models.)
Although there are many benefits of outsourced cloud solutions, there are also risks. (Read Assessing the Coming Impact of Cloud Computing on Outsourced Solutions.) Olsen says the risks of service provider viability and survival, integration with in-house software, and management of a heterogeneous environment are all areas of concern.
She advises buyers to turn to providers that have proven ability to get customers up and running quickly in upgrades and migration with lower risk. She also points out the importance of selecting a provider that gives an organization the flexibility to efficiently move its applications back in-house if it decides later to move to an insourced rather than outsourced model.
Infrastructure
The necessity for new technology tools will be a consequence of cloud-computing offerings. Deepak Patel, CEO, Aditya Birla Minacs, cites an example of a managed testing services platform that leverages a cloud infrastructure and a mobile device management platform to help enterprise customers manage their mobile device infrastructure.
Allied Digital Services adds that service providers will customize tool sets to meet specific industry applications and compliance requirements. Schatzle says the main driver is regulations requiring transparency and reporting around the security infrastructure. These regulations are a huge risk for midmarket buyers, and they will need to “rely more heavily on service providers since midsized organizations often lack sufficient resources for adequate executive oversight.” (Read Risks and Complexities in Outsourcing Decisions in the Midmarket.)
A change in the next couple of years is that buyers will not be bothered about the technology a provider uses but will be more focused on the functionality it delivers. Jain at Wipro says companies that take this approach will quickly make the best use of on-demand computing and be able to manage infrastructure costs based on business cycles.
Also on tap as a change in IT infrastructure services over the next few years is green IT. Schatzle at Allied Digital Services says energy conservation legislation and financial incentives will drive an increase in green IT initiatives.
HP predicts that IT infrastructure outsourcing will turn toward an “everything-as-a-service” model that delivers agility and adaptability while optimizing investments. Although this has been a target approach for a couple of years, it now faces greater adoption because of cloud computing. “A cloud approach brings the enterprise increased utilization of resources, elasticity and scalability, and less capital expenditure in hardware, software, and services,” explains Bess.
The everything-as-a-service model will provide organizations with flexibility, cost control, automation for predictability and consistency, standard tools for processes and reliability, and consistent delivery of global services. However, such a model is based on standardization. With customization, the costs go up and the possibility for problems increases. Bess recognizes that larger companies believe customization is critical for integration in their enterprise, but he warns that “the changes shouldn’t be to basic functionality, because then the service becomes more fragile and less leverageable.”
Finally, a risk for buyers in the constantly changing IT environment over the next few years will be trying to maintain service management and security. HP advises that service management must focus on assessing capabilities and risks as implementations will likely occur frequently. Buyers will also need to reassess and test security and business continuity with each new change to their infrastructure.
