It outsourcing revisited providers should change their attitude or else

Alfredo SaadIT Sourcing Consultant

15/04/2023

IT Outsourcing Revisited: Providers Should Change Their Attitude or else ...

https://br.linkedin.com/in/alfredosaad


Typical complaint of IT outsourcing services’ buyers

A consultative approach aiming at innovation

Consultative approach and the digital disruption scenario

Prerequisites for attitude change

Consultative approach: an opportunity, not a problem

Resulting changes in the IT sourcing area


TYPICAL COMPLAINT OF IT OUTSOURCING SERVICES’ BUYERS

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


TYPICAL COMPLAINT OF IT OUTSOURCING SERVICES’ BUYERS

Such attitude would impact positively the buyers 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


A CONSULTATIVE APPROACH AIMING AT INNOVATION

Although buyers 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 relegates 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 earlier


CONSULTATIVE APPROACH AND THE DIGITAL DISRUPTION SCENARIO

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 the two opposite attitudes seen next



... the change occurs, making viable a significant deepening on the client-provider relationship, with mutual benefits through a solid and enduring partnership as seen below:

For the buyers the effective accomplishment of the variables seen previously

... and for the providers , a strategic and value-added differentiation relatively to its competitors



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

This would progressively reduce the importance of the current provider on its market, which ultimately could have its business operations limited to mere technical and low-skilled tasks


PREREQUISITES FOR ATTITUDE CHANGE

It should be noted that the provider’s decision to change has at least three prerequisites (seen next) that must be accomplished

Both are not necessarily easy and quick to be accomplished and do not depend only on a straight executive decision ...

... although the change seems to be mandatory anyway



A genuine and persevering desire towards the attitude change through the consideration of long disregarded factors should happen:

1st. prerequisite 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



2nd. prerequisite 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

3rd. prerequisite 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


CONSULTATIVE APPROACH: AN OPPORTUNITY, NOT A PROBLEM

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 “revisited” 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 they should support, with a consultative and strategic approach, the anxieties shown by the clients concerning the adoption of the new digital technologies

This “new” attitude will result in 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 revenue in the medium and long term, associated to new strategic and value added services


RESULTING CHANGES IN THE IT SOURCING AREA

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 impacts over all the components seen on next slide



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 and contract(s) negotiation Services transition and contract(s) governance

Measurement of services effectiveness to the client’s business operations (not only its efficiency)

Relationship and integration among IT and stakeholders Provider(s) Buyer’s lines of business Horizontal departments such as Legal, Finance, Procurement,

Human Resources, 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

It outsourcing revisited providers should change their attitude or else

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