Digital innovation fuelled with the fast evolving technology changes has lead to business transformation beyond our imagination. To keep pace with the speed of business demand, organizations are working hard to sustain, compete and maintain their competitive edge leveraging outsourcing approach to their best advantage. Taking a closer look at IT Outsourcing, one stark disparity I can draw between the outsourcing market of today and that of say 10-15 years ago is that outsourcing is no longer viewed as an innovative and risky undertaking. As IT has become more critical to the efficiency and competitiveness of businesses, outsourcing has evolved into a mainstream strategy across the corporate world.
In this blogpost let us have a look at 5 ways in which Outsourcing has changed or to rightly say, evolved over the years:
1- Emergence of the Technology Triad– Cloud, Mobility and Big data, leading business change
Technology is changing at a rapid pace and with every landmark tech; organizations have to re-align themselves to stay competitive and relevant in the business. The emergence of disruptive tech triad – Cloud, Mobility and Big Data, has resulted in landmark shifts in business strategies and organizations are increasingly looking towards outsourcing to quickly implement and derive benefits from the tech triad.
The triad has added a lot of complexity for organizations and made the decision process to buy more difficult. Many queries like- which cloud provider would suit the business?, whether to go for public cloud, private or even hybrid?, which device and OS should one configure the legacy systems for and many more.
This time is challenging for both buyers and providers. Providers need to quickly scale up their expertise and talent to be able to cater to the specific and customized business requirements of buyers and assure agility in the outsourcing business scenario.
2-Outcome based models
As businesses are continued to being challenged with the constantly changing IT trends, they are not just looking at the technology to play a supporting role, but to become a business driver and deliver business outcomes thus focusing on outcome based models where value is driven from measuring business impacts like- Revenue generation, Market penetration and Resource optimizations which are essential ingredients to the evolving outsourcing equation.
Outcome based pricing, variable delivery models are in vogue, though they demand a different appetite from service providers and enterprises to traverse the unknown.
3-Fewer Megadeals– Shift from Major deals to small deals
The shift towards smaller deals has been happening for the past several years, according to Gartner.
The dominance of smaller deals can be attributed on a broader level to the economic turmoil and the delayed stabilization of the world economy, but there are several significant factors causing this shift:
- Outsourcing customers are ditching the traditional model of one provider; they prefer multi-sourcing arrangements. This model allows them to access specific skills of individual teams.
- Also, enterprises are going for shorter duration, as 5 year deals are getting very uncommon and 3-5 year contracts getting popular.
This trend does not exhibit slowdown in Outsourcing, but merely a transition to new models as the total volume of deals are projecting a healthy growth rate.
4-Startups embracing Offshore Outsourcing
The growing digitization of domains like Healthcare IT, Financial services, and Retail has encouraged growth of numerous startup ISVs offering innovative solutions. This entrepreneurial revolution combined with the disruptive tech triad of Cloud, Mobility and Big Data has created huge demand for offshore outsourcing providers who can enable the startups to go live with their product in quick time, thus reducing time-to-market and improving ROI- a critical factor for a startup.
5-Mid Market Outsourcing
With increase in globalization and competition, Mid market organizations are increasingly looking towards IT as a tool for sharpening competitive edge. The advent of Cloud and SaaS services have also boosted the prospects of mid-size companies going for outsourcing providers as they do not have the personnel to deal with the complexity involved in the changing technology and find it best suited to their business goals to outsource their IT requirements.
There is lot of activity taking place in the technology space with Big Data, Mobile, Cloud and Social influencing domains and enterprise systems like we have never seen before. With all the changes in outsourcing, there is one thing decision makers cannot outsource i.e. Risk management. The need to manage the risks associated with outsourcing is growing more urgent.
With this in mind, in my next blog we will discuss on the critical success factors that an Enterprise/ISV needs to keep in mind while outsourcing their software development work in this fast-evolving technology ecosystem. Do share your experiences with IT outsourcing in the comments below.
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