The majority of IT funds is spent on hardware, software and IT personnel including contract staff. So, while the outsourcing budget may not be expanding, there is little evidence that it is going away. Here, then, is the question: If the offshore labour cost differential is losing its edge, why is outsourcing continuing to thrive?
Buying in talent
Clients tell us that their reason for outsourcing today owes much to the continued economic weakness which has forced them to stall projects and run extremely lean teams. But they can no longer continue to cut back and just watch and wait - the backlog of transformation programmes have grown which must now be implemented. They also see that they are suffering opportunity losses by not introducing the new technologies like customer analytics, cloud computing, virtualisation and remote collaboration, that promise to increase enterprise efficiency, provide competitive advantage and add to the bottom line.
Ironically, if global labour costs are diminishing as a compelling reason to offshore, the need for access to a broader range of essential skills is growing. Acquiring the talent required to handle many of the disruptive technologies coming on stream can be a major challenge, especially with reduced inhouse resources, so the availability of a global talent pool is one of the things that makes outsourcing an attractive option.
Aligning IT with business
Despite already running a lean operation, for most organisations in the UK doing more with less and optimising IT remains a priority A key aspect of this is choosing the right sourcing and service delivery models from traditional hosted and managed services to shared services, hybrid onshore, near-shore and offshore options and new cloud-based options. In making these choices, however, the need to reduce operating costs in the short term must be balanced against investment in risk management programmes, continuous performance improvement, IT process integration, skills development and the other operational and business practices critical to long term success. Typically some or all of this kind of expertise will need to be outsourced.
For CIOs, the emphasis today is on aligning technology with business. Sometimes the only way to get the bandwidth - or at least the most economical and speedy - is to outsource it. Not only does this introduce valuable cross industry experience and domain expertise, it adds an important string to the CIO's bow and provides a cross-pollinating influence that can blow away established 'group-think' cobwebs and can challenge the status quo.
To reengineer the IT landscape in closer alignment with business strategies will likely involve the implementation of one or several new technologies and delivery models and calls for expertise in business process improvement and alignment, sensitivity to compliance requirements and very much more. In order to avoid lengthy delays and expensive experimentation, CIOs frequently turn to outsourcing to provide tried and tested platforms.
Smaller organisations that do not have the best practice IT operational procedures of larger and more mature organisations often turn to their outsourcer to provide them. A typical problem that arises from this lack of an established enterprise process framework is that inhouse IT teams and their outsourcers find themselves operating in isolation, thus building up information silos. Ensuring the type of integrated, end-to-end flow that ensures high efficiency and minimised requires things like open communication, clear SLAs, regular service delivery reviews, performance benchmarking and structured IT governance procedures - capabilities which the outsourcer should be proactive in putting in place.
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