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The Evolution of Outsourcing Towards Business Outcomes

It should be no surprise that, with most IT systems, approaches and models now undergoing fundamental change, the structure of outsourcing is also rapidly evolving.

The traditional view that outsourcing simply means getting some outside expert bodies to help, is rapidly becoming outdated.

In new research by professional services giant KPMG, they argue that "services and outsourcing have now entered a very significant disruption" and 'things will never be the same".

In it's Executive Report entitled 'The State of Shared Services & Outsourcing 2014', KPMG postulates that "outsourcing is now teetering at a crucial juncture between providing genuine value and low-cost staff augmentation".

They have this warning for service providers: "Providers need to prove they can do more than basic operations, otherwise outsourcing runs the risk of becoming a staff augmentation model for flexing operations as opposed to a strategic partnership between provider and buyer that can add more skill, technology, and analytical capability for clients".

And this comes in an environment where both shared services and outsourcing are on the increase. 

"One in four enterprise buyers are reinvesting heavily in their global shared services operations, while seven out of ten are continuing to make (largely moderate) investments in their outsourcing delivery," says the KPMG report. "This is driven by technology advancements and automation and the rampant globalisation of enterprise supply chains and business ecosystems."

KPMG's work has determined "there is a clear move towards integrated global services models that incorporate both shared services and outsourcing".

Some of their statistics are illuminating:

  • 93% of enterprises today have shared services;
  • 96% percent are outsourcing some element of their back office IT and business operations;
  • 27% percent are actually reducing their investments in their own internal business units, and;
  • 56 % are already increasing investments in their centralised hybrid governance function to manage their mix of service delivery models.

To this end, says KPMG, "the increasing majority of enterprise buyers today are investing in an integrated global services model that orchestrates their process delivery across all available vehicles of sourcing".

The researchers maintain that clients seeking greater productivity and value now have multiple levers available, including: productivity and value.

These include:

  • SaaS-based business platforms;
  • High-value analytics tools and skills;
  • Better automation and robotisation of their processes, and;
  • Simply hiring their own offshore teams to do the work, as opposed to paying the (often higher) rates of the providers.

Tellingly, KPMG argues that organisations now clearly cannot reach their desired outcomes without professional help.

KPMG also warns that "a major talent crunch is coming". They say "this will impact the vast majority of ambitious organisations struggling to find, retain or retrain operations staff to be more 'front office' and 'digital savvy' with their approach to services".

"Two-thirds of outsourcing clients are happy with how their internal teams manage costs, keep the basics ticking over and respond to compliance needs," the report states. "But as these 'lights on' capabilities become increasingly commoditised through more sophisticated technology platforms, the needs for the current number of operation staff is steadily decreasing."

Experienced external service providers such as Logicalis, are in the front line of this transformation of outsourcing. Logicalis, which employs some 3700 people across the globe, is an international IT solutions and managed services provider with comprehensive knowledge and expertise in communications and collaboration; data centre and cloud services; and managed services.

Logicalis has highly trained service specialists who design, specify, deploy and manage complex ICT infrastructures to meet the needs of almost 6,000 corporate and public sector customers.

The latest Optimal Services Survey by Logicalis supports KPMG's findings about the transformation of outsourcing.

Covering 24 countries, the study found that "almost half (47%) (of those surveyed) want the majority (50% or more) of their IT services to be provided or managed by external service providers, including cloud (IaaS/PaaS & SaaS)".

Interestingly, outsourcing is still restricted to the minority. The study found that just 24% have managed to transfer the majority (50% or more) of their IT services to external providers. And 70% report that between 10% and 40% of their IT services are currently provided or managed externally.

Commenting on the survey, Logicalis Group President and COO, Mark Rogers, said that: “All of this means that customers will require us to help them become even more service defined — this means we will not only have to help the CIO transition their organisations, but crucially we have to better capture and deliver this multi-sourced business driven agenda, but also more clearly demonstrate how new technologies or services translate into tangible business improvements and outcomes.”

To read more about the findings of the 2014 Optimal Services Survey, go to the full report here.

Tags Innovation, Cloud, analytics, Data Centre, external service providers, outsourcing, PaaS, SaaS, IaaS, KPMG, Logicalis, service providers, Shared Services

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