Alfredo Saad

IT Sourcing Consultant at Saad Consulting

IT Outsourcing Revisited: Providers Should

Change Their Attitude or else ... Apr 27, 2015

Since the beginning of the outsourcing era, during the eighties, a typical complaint by the organizations that outsource their IT

services is made explicit during the satisfaction surveys periodically conducted by the providers. It concerns to their perception

about a certain amount of provider inability to promote innovative ways of providing the services, which could impact positively the

buyer organizations regarding to:

- The efficiency and effectiveness of their business operations

- Their competitiveness and agility in the market they operate

- The treatment of the permanently mutant requirements of their client community

Although buyer organizations typically recognize the provider’s ability regarding the fulfilment of their tactical and operational

contractual obligations, they resent a provider’s consultative approach, aiming at prospecting and discussing innovative alternatives.

It should be highlighted that, in theory, the search for innovation should be a mutual motivator for both parties: for the provider,

because this could bring an instigating expectation about having additional deals closed and for the buyer, because this could result

in a better performance in the market they operate.

It is a fact, however, that the providers, immersed in the day-to-day contract difficulties, tend to prioritize the contract’s operational

and financial stability. A restricted short term view relegate to a secondary role (rarely accomplished) the intention to assign

consultative resources which, by interacting with the strategic level of the buyer organizations, could generate, in the medium term,

the mutual and significant benefits shown above.

Such complaint of the buyer organizations, long observed, become a critical factor in the current digital disruption scenario, where

many new technologies (cloud, IoT, big data, analytics, wearables, 3rd platform, mobile apps, among others), emerged during a

relatively short period of time, boost more quickly than ever the importance of the variables involved. Among these variables (note

that some of them are mutually conflicting) we can highlight: competitiveness, agility, efficiency, effectiveness, cost reduction,

time-to-market, market share, compliance, regulation and legal obligations.

This criticality, increasingly prevalent and urgent, has forced the providers of IT outsourcing services to change their attitude as a

reaction to the pressure of their clients. The need for such radical and mandatory change actually allows two opposite attitudes:

- The change occurs, making viable a significant deepening on the client-provider relationship, with mutual benefits (including, for

the provider, a strategic and value-added differentiation relatively to its competitors), through a solid and enduring partnership or

else ...

- ... the change does not occur, encouraging the clients to search for providers which show up as more responsive to their

requirements

It should be noted that the provider’s decision to change has some pre-requisites that must be accomplished. Some of them are:

1- A fair balance in the operational and financial contractual decisions, assuring that the medium and long term vision will

be considered, aside with the achievement of the short term objectives

2- A negotiated contractual risks sharing, aiming at an innovative charging mechanism, based on risk-reward concepts,

which must reflect the real benefits brought to the business of the client

3- The capability to acquire and maintain the new technical and consultative skills required to support the clients during the

journey to an effective adoption of the new digital technologies

It should also be emphasized that, more than a risk to the providers, such transformation must be seen as an opportunity to achieve a

consolidated competitive advantage in the newly “ revised” IT outsourcing market. This is especially true for those current provider-

client relationships governed by “ traditional” outsourcing contracts. The current providers must be conscious that when they

support, with a consultative and strategic approach, the anxieties shown by the clients concerning the adoption of the new digital

technologies, they will be making viable a long term partnership, which gives them an enormous competitive advantage as

compared to their competitors.

The probable price to be paid is a partial revenue loss in the short term (for instance, as a consequence of the migration of legacy

environments currently supported in a traditional data center infrastructure towards a cloud environment), but with the perspective

of a significantly bigger future revenue, associated to new strategic and value added services.

This revisited scenario will certainly bring a deep change in the IT sourcing area, both under the viewpoint of the providers and the

buyers, with significant impact over all its components:

- Definition of business drivers which motivate the sourcing decision

- Definition of the sourcing strategy (ITO? BPO? Cloud? Hybrid blend of the previous alternatives?)

- Provider(s) selection

- Contract(s) negotiation

- Services transition

- Contract(s) governance

- Relationship with the provider(s)

- Measurement of services effectiveness to the client’s business operations

- Integration between client IT and provider(s)

- Integration between client IT and its internal shareholders

- Organization’s lines of business

- Horizontal departments such as Legal, Procurement, Human Resources, Insurance, Taxes, Auditing,

Risks, Compliance, etc.

In general terms, there is a perception that the attitude change is occurring, although in an excessively conservative manner, and

with a lower than reasonable speed as compared to the needs demonstrated by client’s anxiety and urgency.

Do you agree with the concepts here presented? Enrich the discussion with your comments.