Reconsider Outsourcing To Accelerate IT Maturity

Fred Giron

Organizations in growth markets across Asia have not traditionally been heavy consumers of outsourcing services. Having lots of on-premises hardware still carries some prestige for local CIOs, particularly in China and India. The availability of relatively inexpensive IT staff in local markets has also helped them deliver acceptable service levels to the business. Until now, that is. The combination of quickly rising IT salaries, increased competition from regional and even global expansion, and growing demands among business stakeholders to more effectively engage customers has put pressure on CIOs to increase the performance of their organizations.

More and more CIOs I speak with are struggling with how best to effectively transform their IT capabilities and meet fast-changing business requirements. In particular, whether to embark on this transformation journey alone or leverage outsourcing partners. In a recent report, I profiled organizations in Asia that are leveraging external service providers to accelerate their IT maturation. One example is a manufacturer with 10,000 employees and operations across Asia that outsourced its entire IT infrastructure environment to improve and homogenize service levels. Another is a large Indian bank that outsourced its entire IT department to a service provider and improved its maturity level from a 3 (on a scale from 1 to 10) to a 6 in less than a year.

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To Drive IT Spending, Target The Business!

Fred Giron

Last week, Forrester hosted a breakfast roundtable in Sydney for approximately 20 tech vendors seeking to capitalize on current IT spending trends in Australia and New Zealand. With expected IT spending growth of nearly 4% in 2013, the A/NZ market is still going strong. However, this good health hides major shifts, including the increased role that business decision-makers (BDMs) are taking in direct IT purchasing in areas like staff, products, and services. As a matter of fact, Forrester expects the percentage of IT budgets that IT directly owns or controls to decrease by 2% to 5% between 2012 and 2014 in most A/NZ organizations.

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SOURCING BUSINESS OUTCOMES REQUIRES A SEA-CHANGE IN THE WAY SOURCING BUYS AND SELLERS SELL

Mark Bartrick

Over 40% of senior business executives are looking to suppliers and external parties to co-develop and deliver measureable business outcomes. Telling suppliers to forget their old pricing metrics and focus instead in delivering value while also sharing risks and rewards requires a new set of skills on both sides of the negotiating table. This is a real challenge for both suppliers and buyers, and it takes both parties out of their comfort zones into new territory for risk management, project control and revenue sharing.

Forrester’s Forrsights data reveals business executives want to see more value delivered from IT projects and more outcome-based contracts. This is a priority for them in the next few years and sourcing professionals must develop and enhance their skills in this key area or risk getting left behind.  

Whether it’s increasing revenues, driving more client subscriptions, cutting costs, facilitating more paperwork processing in less time or driving up customer satisfaction and retention, some IT companies are now offering outcome based contracts and are happy to be paid purely on the results.

Unfortunately for some of today’s technology giants, clients don’t want to pay anymore for software licenses, hardware products or time & materials staffing. They want the suppliers to have ‘skin in the game’ and want to pay based only on the value delivered and the outcome achieved.   

To help their organizations navigate through the emerging world of business outcome based contracts, we have identified three key principals of change that both suppliers and buyers will need to address:

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Are you ready to source digital disruption?

Christopher Andrews

Digital capability – social, mobile, cloud, data & analytics – disrupts business models, introduces new competitive threats, and places new demands on your business. Highlighting this fact: Forrester’s 2012 “Digital Readiness Assessment” survey found that 65% of global executives say they are “excited about the changes that digital tools and experiences will bring” to their company.

While most people know these digital trends are coming, however, far fewer know how to purchase these cutting-edge digital capabilities. What companies will you rely on? Where are the new risks? What are the pricing models?  In the survey mentioned above, only 32% of the same sample agreed that their organization “has policies and business practices in place to adapt” to those digital changes.

This is important, since developing the breadth of digital capabilities your company needs cannot all be done in-house. To succeed, your company will need to access the strengths of its supplier ecosystem, maximize value from strategic partners, and leverage emerging supplier models.  

This is a tremendous opportunity for sourcing and vendor management professionals to increase the strategic value they provide to their business. But to do this, you’ll need to balance your traditional cost-cutting goals with demands for business expectations for growth, innovation, and value.

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Sourcing Strategies To Drive Digital Disruption: Early And Fast-Evolving

Liz Herbert

Leading-edge executives at organizations drive growth, innovate, and disrupt industries through emerging technologies: social, mobile, cloud, analytics, sensors, GIS and others. 85% of executives in a recent survey shared that “the need to drive innovation and growth” would have a moderate or high impact on IT services spending. But, today’s technology buyers face a fragmented, fast-moving landscape of niche technology and services providers in newer spaces (social, mobile, cloud) as well as new offerings from their largest global partners.

Often the leading- and bleeding-edge disruption comes from business stakeholders, rather than IT or sourcing executives; sourcing executives struggle to keep up with the fast pace of change that business demands. Our research shows that this fragmented, divisional, silo approach to buying (often under the radar screen) can create risk and go against enterprise IT strategy decisions.

To help their organizations navigate through these emerging options, we have identified three key principles of IT sourcing strategy:

  1. Change the rules for working with vendors and partners. To thrive in the world of digital disruption and to enable sourcing of emerging technologies and services that drive digital disruption, sourcing strategists must create new rules for working with technology partners. They must increase the emphasis on innovation and differentiation and treat partners who excel in these dimensions differently from other tiered suppliers.
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Disaggregating “SMAC” is the First Step In Sourcing Digital Business Outcomes

Christopher Andrews

Much has been made over the past few years about the “new” digital technology imperatives – social, mobile, analytics and cloud (collectively referred to as “SMAC”). Though the IT industry is flush with reports about SMAC, lumping these technology capabilities together is both helpful -- because they do represent a collective “what’s hot” in IT -- and misleading, because each technology has a different level of maturity, complexity, and business impact.

I often say that that sourcing professionals are “where the rubber hits the road” with new technologies.  That is, the technology industry can hype a new technology all it wants. But until someone makes a strategic sourcing decision -- one that carefully examines costs, risks, and benefits of these offerings for enterprises, it’s mostly just hype.

And when you peel back the layers of the SMAC acronym, what you see are four unique solutions, each with different levels of complexity which are highlighted in the sourcing process:

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Cisco Services Leverages Software Assets To Transform Its Services Value Proposition

Fred Giron

As you’re all well aware by now, a perfect storm of technology innovations — including cloud, analytics, mobile, and social­ ­— is fundamentally disrupting the way your company engages with its customers (as well as employees and partners). For service providers in particular, the main challenge is understanding how to best leverage these technology innovations to remain relevant and ultimately generate more business value. So it’s exciting to see a service provider like Cisco Services come up with new offerings that respond to this challenge in innovative ways.

I met with Cisco Services Asia Pacific Japan and China (APJC) executives last week in Seoul to discuss their strategy in Asia. I wanted to highlight a few takeaways that I believe will be important for sourcing professionals in Asia and beyond:

  • Cisco Services is a key enabler of Cisco’s overall transformation. Cisco Services used to be a captive consulting organization providing support and technology services for a product company. In a recent analyst call, John Chambers identified Cisco Services as one of the main levers that will help Cisco transition from a transaction-oriented to an annuity-based business model and help the company become the largest IT company globally. The company’s aim is for Cisco Services to represent 24-26% of total revenues in the next 3-5 years. These goals are extremely audacious; achieving them will require huge efforts from Cisco, including some targeted acquisitions in the services space.
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Mobile World Congress 2013 Barcelona: Cheaper, Better, Faster, Broader

Clement Teo

My trip to the Mobile World Congress in Barcelona this year drew mixed emotions: excitement over the vast changes in the mobile world, followed by frustration at having my laptop bag stolen. The last time I was there, in 2008, Motorola was a phone and infrastructure manufacturer, Nortel Networks was still in business, and Nokia Siemens Networks was barely a year into its merger.

Today, Nortel (and my bag) is but a distant memory, Motorola Mobility is part of Google, and others, like Alcatel Lucent, have battled to stay relevant in an age of cheaper products and services. Nokia Siemens Networks, for instance, is today a more focused, leaner company, recently announcing a return to profitability after quarters of losses. Even the venue has shifted from the old grounds to a newer, larger facility.

The GSM Association (GSMA) projects in a global report that developed economies will save US$400 billion in healthcare costs from mobile health services by 2017, and a reduction in carbon emissions of 27 million tons (the equivalent of planting 1.2 billion trees) via smart metering technology in the same period. 

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Nasscom 2013: Real Changes To Indian IT Services Are Underway

Christopher Andrews

I am just back from the whirlwind that is Nasscom India Leadership Forum 2013 in Mumbai, India. The Nasscom event is the premier event for the Indian IT services marketplace. Besides meeting great people, eating too much wonderful Indian food, and seeing action star and local legend Amitabh Bachchan in-person, the event provides a chance to check the pulse of the most important geographic hub for the IT services marketplace. 

Here are some of my key findings from the trip:

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Local Outsourcing Providers Should Be On Your Radar In China

Gene Cao

Over the past three years, multinational companies’ (MNCs’) approach to outsourcing in China has steadily matured as they seek to leverage broader outsourcing models and source from a combination of global providers and local Chinese providers.

In my latest report, Lessons Learned From Outsourcing In China: Part 2, I analyze the key outsourcing trends and approaches to help sourcing and vendor management (SVM) professionals at MNCs select the right local outsourcing suppliers. As part of this analysis, I’ve highlighted the main service capabilities of local Chinese vendors broken down by service model and profile the different types of service providers that currently operate in China.

Key findings from the report include:

  • MNCs are adopting sophisticated outsourcing approaches in China. Many MNCs are shifting away from a pure global service provider approach to a broader shortlist that also includes Chinese providers. SVM professionals at MNCs appreciate local providers’ broader geographic coverage, lower outsourcing cost and more flexible service deliverables.
  • MNCs are also diversifying their outsourcing requirements. After signing the first wave of outsourcing contracts in the past five to 10 years, MNCs are becoming increasingly comfortable considering more sophisticated outsourcing contracts, such as best-of-breed selection, vertical outsourcing, etc.
  • Local outsourcing service providers are continually improving their capabilities. To approach more MNC clients in China, local providers have enhanced their geographic coverage in remote cities, accelerated consolidations, recruited senior talent for improved depth at key positions and aggressively recruited fresh graduates to manage costs.
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