Is digital the beginning of the end for IT outsourcing?

The rise of digitisation, big data and cognitive technologies has seen IT become a strategic asset to the business as opposed to a necessary (and costly) evil. According to a Wall Street Journal article published late last year, organisations are shunning external IT partners as a result of this shift, deeming such responsibilities as IT innovation, system design and architecture, and decision-oriented applications too critical to their success to outsource. Could the digital era spell the end of IT outsourcing? Or just IT outsourcing as we know it?

Service centricity

Outsourcing used to be a means of cutting costs, reducing capital budgets and increasing efficiency. Traditionally, CIOs worked with an IT partner to select a particular technology and vendor to buy it from, and define the scope of an implementation project; a process that was repeated each infrastructure refresh cycle. Decisions that needed to be made were of a tactical rather than a strategic nature, but as IT evolved, there’s been a shift in the complexity of decision-making. Now, with the broad range of options opened up by the cloud and the increasing ubiquity of managed service solutions for just about all aspects of IT, any significant potential investment in technology needs to be viewed from a more strategic perspective.

Virtualisation and the cloud have caused technology to become further abstracted from the underlying infrastructure, and in the process, the CIO’s focus has moved away from the piece of equipment and towards the service being delivered. While conversations with IT providers before would have revolved around SAN, a particular blade or network switch, they now revolve around software defined networking, selecting a cloud model, and a style of computing.

The rise of the MSP

These services move end users away from an expensive CAPEX model to a consumption-based OPEX model. IT providers in turn have had to change their business functions and reassess their value propositions to stay in the game. This has meant tailoring their solutions to focus on the management of IT infrastructure rather than its provision. It’s no longer about building something and walking away, it’s about committing to the ongoing management of a system to reach peak performance and results; hence the term managed service provider (MSP).

Good news for CIOs and their teams, a key difference between the old-school IT partner and the MSP is that the latter generally complements rather than replaces internal IT. A recent article in CIO Magazine explains that, in large companies especially, bringing an MSP on board frees up existing IT staff to focus on more value added projects. According to the article, partnering with an MSP “elevates the IT staff and brings them out of the shadows within the organisation. It allows them to focus on a custom app development project or cloud initiative – something highly strategic”.

Innovation as a service

As technology has evolved to become a strategic necessity, so too has innovation. Another argument to come from the aforementioned Wall Street Journal article, is that it's difficult to get innovative, differentiated outcomes when organisations outsource IT. A contributing CIO states that “true innovation results from IT professionals being tightly aligned with the company’s strategy, and that's difficult to pull off when the IT staff work for a different company.”

Although rolling out innovation initiatives in-house isn’t a reality for many organisations. In large enterprises in particular, cautious governance and approval processes tend to stifle innovation. In an article titled ‘The eight essentials of innovation performance’, McKinsey & Co identify the use of partners as crucial to the ability of an organisation to accelerate and extend innovation, since it’s increasingly rare to find all of the necessary talent and knowledge within one organisation and its geographical borders. The article states, “Collaborating with external partners reduces costs and is also a faster route to market. Successful innovators discover they can achieve significant multiples for every dollar invested in innovation by accessing the skill and talent of others. Co-creating with business partners and crowdsourcing with customers and other stakeholders, present opportunities to extract more value from innovation investments. Companies should therefore aim to become the ‘partner of choice’ in the areas where they need to extend”.

A new definition

The cloud and digital technologies have changed the way organisations outsource their IT. What was once a transactional, cost-cutting arrangement now has the potential to be an innovative and proactive business partnership, and create a more strategic role for the CIO in the process. Rather than deliver projects on time and within scope, IT providers today are required to deliver the right skills, innovative ideas, industry expertise, and cutting edge technology – as a managed service. IT outsourcing isn’t going away, but it has certainly taken on a completely different meaning. Perhaps ‘IT collaborating’ is a more appropriate term?

To learn more about how partnering can help CIOs drive innovation within their enterprise, download our complimentary white paper, The Age of Innovation: When change is no longer an option.

Tags big data, CIO, Innovation, Cloud, IT infrastructure, CAPEX, digitisation, managed services provider, OPEX, outsourcing, virtualisation


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