Gartner on the rebirth of outsourcing

The outsourcing market, like many others, is undergoing rapid change due to the arrival of 'digital business.' This type of business is about capitalising on the new opportunities that are constantly arising in a world where the lines between physical and digital, between people, businesses and things, are increasingly blurred.

At the centre of this change is the 'Internet of Things.' Gartner estimates that, by 2020, there will be at least 26 billion connected 'things' — excluding PCs, tablets and smartphones — all communicating, transacting and even negotiating with one another. That's well over three times as many people as are alive today. As the number of connected things continues to grow, information is flowing faster than ever before, and new disruptive ways to do business are quickly emerging.

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Traditional market leaders are losing their margins to companies that a few years ago they would never have expected to compete with. The evidence for this is widespread and obvious: a brand most famous for its search engine is pioneering the concept of the driverless car; a shoe manufacturer now sells the leading brand of electronic fitness gadgetry; and a leading producer of eyeglasses is preparing its production lines for mass manufacture of e-glasses.

But this is just the beginning of the world's digitalisation. This process will accelerate with the growth of the Internet of Things, as more and more of the analogue world becomes 'instrumented' and begins to provide data that can be analysed to find new opportunities to profit from products and services.

As the world becomes digitalised and the speed of business increases, the way businesses source products and services must evolve to keep pace. To take full advantage of the opportunities presented by digital business, and to manage the threats, it is vital that organisations are agile and able to respond quickly to changing demands and circumstances.

A truly digital business understands that IT not only runs the back office, but now also has a place in the front office, where it plays a key role in introducing new products and services to meet rapidly changing demand, in marketing, and in enabling deep levels of engagement with customers. In a digital world, IT that is built only to last can quickly become a dead weight, a drag on innovation, agility and ultimately profit. A business's IT, or at least part of it, must now be built to adapt.

Gartner recommends approaching this challenge with a 'pace-layered' model of adaptive sourcing. Pace-layering sees different IT functions operate at different speeds, with organisations treating the different functions as different layers within a sourcing strategy.

To enable a pace-layered approach, many companies create a 'bi-modal' IT organisation within their business. This means that one part of the IT organisation focuses on the more traditional 'built to last' aspects of IT — things like ERP systems, data centres, operations and telecommunications. The other part pursues digital initiatives, such as product development and marketing, at the rapid pace these consumer- and market-facing activities require to adapt to external demands and threats.

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One obvious implication of IT's assumption of a more holistic role in the business is that IT sourcing will increase. The nature of IT sourcing will change, with contract value for megavendors stagnating or growing only slowly. At the same time, there will be faster growth for smaller, more agile IT suppliers that can respond to the rapid, specialised requirements of clients, and that can scale solutions more quickly by exploiting the growing forces of cloud computing and mobility.

IT outsourcing is undergoing a metamorphosis to support the new demands placed on CIOs by the increasingly technology-aware executives that run modern businesses. As a result, a new breed of CIO is required, one open to adopting innovative, cloud-based technologies and to integrating them with internal systems.

This new CIO must act almost as a broker of technology, advising different business units on the external options available to them, and helping to integrate and run them. It's becoming clear that if the CIO does not meet the technology needs of a particular business unit within an organisation, members of that unit will simply ignore him or her and source the technology themselves, since, in the age of cloud computing and mobile devices, this can be quicker than waiting in a long queue of IT requests. If the CIO does not foster a fast-paced approach to IT sourcing, alongside more traditional IT sourcing, the business will simply get what it wants elsewhere. And if that happens, the role and importance of the CIO will diminish.

It's therefore a 'make or break' time for CIOs and sourcing leaders. Digital business presents a huge opportunity for the IT organisation to reinvent itself as a driver of growth and innovation. At the same time, it poses a serious threat, as it's easier than ever for non-technical people to source highly technical solutions, and for control of technology to become fragmented and disorganised as a result.

A simple example of this kind of 'shadow IT' arises if a CIO is slow to introduce, or entirely fails to implement, some form of cloud storage that enables access to files and work resources from mobile devices; if that happens, employees will simply subscribe to a service like Dropbox or Google Drive. The result is that sensitive corporate information will enter a domain over which the business has no control. Disclosure of this information could harm both the brand and the business.

Outsourcing is in the process of being reborn, as adaptive sourcing. This demands that organisations have an outsourcing strategy with distinct layers that operate at the pace of the business outcomes they facilitate. This strategy must be as flexible as is needed. It must involve more integration of third-party applications and services with internal systems, as well as greater collaboration with stakeholders inside and outside the organisation.


Sourced from Claudio Da Rold, vice president and distinguished analyst at Gartner

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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