Nearshore Blog

The Three Types of Outsourcing Relationships

While no two outsourcing relationships are alike, some broad generalities can be drawn about different types of common relationships. For example, HfS Research identifies three main types of outsourcing relationships in its recent white paper, “The Great Talent Paradox in Outsourcing.”

As the type of outsourcing relationship you have plays a crucial role in determining how much (or little) value it will deliver, it is worth reviewing these three categories. Which one best describes your own outsourcing relationship, and are you satisfied with the result?

‘Lights On’ Outsourcing
As defined by HfS Research, a “lights on” outsourcing relationship is marked by a buyer seeking to simply drive out cost without incurring any “disasters.” As the buyer sees little to no strategic value in outsourcing, they see no need to pay for high-level talent or expertise. The “lights on” buyer is satisfied with basic execution of outsourced processes at a cheaper cost and governance typically consists of enforcing SLAs and otherwise meeting essential goals.

Do You Have IT Awareness?

You might assume that most IT decision-makers have a firm awareness of their IT assets and how those assets are used and provide value to the enterprise. You would be wrong.

A recent survey of IT professionals from systems integrator Kovarus, Inc. indicates that less than four in 10 (38%) respondents specifically make their investment decisions based on true alignment and value to the business. This means that for more than six in 10 IT professionals critical decisions are being made without the correct business insight, putting the IT department at a disadvantage with other better-informed business units.

IT Pros Lag in Awareness, Capabilities
The survey also shows that large percentages of IT professionals are lagging not only in awareness of their IT assets, but even of the capabilities to gain awareness. For example, 40% of IT professionals were not aware of their IT assets – a slightly higher percentage than make investment decisions based on actual business value and alignment. Thus a large portion of the IT budgets at these organizations are not allocated for correctly, leading to inflated costs.

Especially as many companies place their IT organizations in open competition with third-party service providers, this type of unnecessarily increased cost can be deadly to the viability of an in-house IT unit.

Furthermore, about two thirds (65%) of survey respondents said that they did not have the time, practices or tools to collect information on the utilization of their IT investments. That is, they did not have the capability of determining performance and capacity used on daily basis. Kovarus advises this situation is especially damaging to virtualization efforts (and who isn’t virtualizing or planning to virtualize systems these days?), as collective capacity needs cannot be determined, which can lead to environments being overconfigured by a factor of as much as 15.

Smartphones Change the Game for CIOs

The continuing proliferation of smartphones is changing the game for CIOs. Your employees and customers are most likely connecting to the Internet via smartphone or other mobile device, meaning both internally and externally facing solutions must be adapted and optimized for mobile access.

According to a recent report from comScore, “Mobile Future in Focus 2013,” more than 125 million US consumers have smartphones and more than 50 million now own tablets. As a result, comScore says there is a “new paradigm of digital media fragmentation where consumers are always connected.”

Outsourcing Buyers Seek New Technology Capabilities

While outsourcing buyers still rank the same three factors in selecting a provider in 2012 as they did in 2009, a number of new technology capabilities which were not on buyers’ radar screens in 2009 have become important to provider selection.

As revealed by the findings of a recent IDC webinar, ““The Pulse of Outsourcing Q4 2012,” the three most important factors in outsourcing provider selection in 2012 – full range of IT and business process services, proven record of delivering on SLAs (service level agreements) and costs, and financial stability – are ranked the same as they were in 2009.

However, the percentages of respondents citing a full range of IT and business process services and a proven record of delivering on SLAs and costs were much lower in 2012 than 2009, while the percentage selecting financial stability slightly increased. More interesting is the appearance of several new factors selected by significant percentages of respondents in 2012 that did not appear in the 2009 IDC survey of BPO buyers.

Virtualization Data Protection Demands Attention

The typical CIO has an overflowing “to-do” list of items that are virtually all “mission critical.” Inevitably, tasks that literally must be performed to keep the IT enterprise running, such as server maintenance, take precedence over tasks which are equally critical but do not immediately shut down the enterprise if performed improperly, such as security.

And when you’re talking about a specific subset of security, such as virtualization data protection, then it is almost certain CIOs will first focus their attention elsewhere. Thus it is not surprising, but still an ominous sign, that a new CIO survey from backup, replication and virtualization management solutions provider Veeam Software shows numerous weaknesses in overall enterprise virtualization data protection levels.

2012 – A Year of Disaster for IT Services

According to urban legend, 2012 was supposed to have been a year of apocalyptic disaster due to the ancient Mayan calendar ending on Dec. 21 of last year. Of course Dec. 21 came and went with nothing more than bad weather in the Northeast and life continued as always.

But perhaps the ancient Mayans were really looking ahead to the performance of the global IT services market. According to new analysis from research firm Ovum, 2012 could be considered a year of disaster from the standpoint of IT services providers. Aided by especially poor fourth quarter performance, annual IT services contract activity during 2012 fell to its lowest level since 2002 in terms of total contract value (TCV) and deal volume.

Global IT Services Market to Grow 3.5% in 2013

The global ITO market is set to grow 3.5% in 2013, according to recent projections from HfS Research. While ITO performance in the Europe, Middle East Asia (EMEA) market is expected to continue to be poor this year, HfS expects recovering growth in North America as well as increased demand for IT infrastructure services in non-traditional markets to compensate.

Total market size for the global ITO industry is expected to reach $648 billion this year, with professional services representing $309 billion of the total. Application development and maintenance (ADM) outsourcing will represent another $70 billion, while IT infrastructure management will drive $143 billion in 2013 revenue.

Taking Advantage of Increased Enterprise IT Spending

CIOs have not had an awful lot to celebrate in the past few years – personnel reductions, spending freezes and a refusal to risk precious corporate funds on leading-edge, innovative systems have been realities for far too many top IT executives since the Great Recession began in 2008. But according to a new forecast from IDC, CIOs actually may have reason to smile this year – as long as they do some advance planning.

According to IDC’s United States Black Book 4Q 2012 report, total IT spending on hardware, software, and IT services across all 15 enterprise industries tracked by IDC is forecast to grow 6% year-over-year in 2013 to approximately $474 billion. Although factors such as the “fiscal cliff,” contracting G.D.P growth, and declining international trade owing to reduced economic activity in the Euro zone all negatively impacted US IT spending in the final quarter of 2012, IDC predicts economic stabilization will take hold in the second half of this year, creating “moderately strong IT spending growth.”

Big Data 2020: Prepare Now

The year 2020 may seem fantastically remote, but it actually will arrive in less than seven years. So it’s not too early for CIOs to start preparing for a business and consumer landscape that may be substantially reshaped by continuing developments in Big Data. A recent report called “Big Data Democracy” from Intuit and Emergent Research makes several predictions about how businesses will have to take a very different approach at the dawn of the next decade in order to stay competitive. Following are a few of the most significant ones.

Consumers Hold Power
Intuit predicts that increased consumer access to pricing information and the insights of fellow shoppers will create an atmosphere of “turbocharged competition” where consumers are constantly hunting for the best bargains and products. Consumers will also regularly participate in the nascent activity of “social shopping,” which allows groups of friends to collaboratively shop via social media networks and streams of text, images and video.

In addition, consumers will increasingly make “value-influenced decisions,” meaning increased visibility of data on product sustainability and other broader issues will impact buying decisions beyond factors such as product quality and price.

Privacy Must Become Great
The report bluntly states that “being good isn’t enough” for privacy. As more and more personal consumer data becomes stored (and potentially accessible) on the cloud, consumers will demand that businesses make every possible effort to protect it. Companies that do not make transparent efforts to go “above and beyond” in protecting consumer data will see their brand reputation suffer dramatically. In addition, industry and government data privacy and security regulations already show signs of growing tougher.

There’s Revenue in Them Thar Mobile Devices

CIOs have learned to be skeptical of new technologies. After all, how many “revolutionary” IT trends turn out to have little or no impact once the novelty wears off and early adopters have moved on to the next latest and greatest thing? According to a new survey of 413 global C-level IT executives from Accenture, CIOs have no such doubts about mobile devices and are rapidly gaining confidence in mobility as a revenue generator.