IT outsourcing: A new way of thinking

In my previous article, I reviewed how information technology outsourcing (ITO) models shouldn’t be a barrier, but rather a catalyst for innovation and encouraged a rethink as to how initial ITO conversations should be shaped. Now let’s take that further and demand a change in ITO models in order to support the requirements of today.

The so-called IT outsourcing ‘mega deal’ — a multi-year, multi-billion-dollar contract awarded to a single supplier — has long been in decline.  ITO as we know it is increasingly out of step with what businesses need in the digital era.

Let’s assess the ITO models currently on offer.

Back in the days of the mega deals, buyers went through an often gruelling selection process to pick a single partner — typically supported by a number of subcontractors — to provide all their services. This is known as the vendor-led model. Here, the buying organisation only talks to the single partner who then talks to the subcontractors in their silos. Communication is disjointed and collaboration discouraged.

Later, buyers sought to increase their control by outsourcing functions directly to separate providers, basically cutting out the middleman. This is the vendor-driven model. Although this provides better direct communication to the ITO contractors it often more costly, time-consuming to manage and can create conflict.

So what is the best way forward? How can ITO support and encourage innovation?

A best-in-class approach is the integrated-tower model. In a nutshell, best-in-class providers are allocating specific business-driven functional ‘towers,’ such as network (data, voice, unified communications, video, etc.), applications (development and maintenance), commodities (cloud, email, print, mobile) and services (desktop, data centre, infrastructure).

Typically, these are overlaid with a service integration and management (SIAM) layer provided by a separate supplier but this ‘middleman’ can add unnecessary complexity and create communication issues within the ecosystem. Almost all tier-1 service providers and clients use similar industry standard best practices, such as the IT service management standard IT Infrastructure Library (ITIL), to align services with business requirements, making direct communication straightforward. With this in mind the management of the SIAM layer is often best kept in-house.

The major advantage of the integrated-tower approach is that it enables businesses to bring in specialist knowledge to strengthen in-house capabilities.  A direct commercial and service relationship is developed with each functional tower and these tower providers work to joint operational-level agreements encouraging innovation and collaboration throughout the ecosystem.

This approach provides a flexible, agile and adaptable environment to embrace the potential of the digital technologies and the strength of each individual provider.

It would be unrealistic to think that organisations that currently have some form of IT outsourcing arrangements in place should start again from scratch. However, by reassessing their actual requirements and starting to build truly effective partnerships today, these organisations can then engage other ITO aspects in the future for better business outcomes.

One thing is clear. Digital transformation is too large, too complex and too urgent for any one organisation to tackle on its own. The quality of the partnerships engaged will be the decisive factor.

In my next article I’ll be discussing the attributes smart partners need to possess to ultimately drive the success of the IT outsourcing model.