IT Outsourcing Industry: How does the future look like?
Thomas Freidman’s famous book ‘The World is flat’ underlined and highlighted the immense importance of some forces which have ‘flattened’ the world. Out of the ten forces, ‘outsourcing’ is one prominent force that finds mention in Friedman’s list.Outsourcing has always been ‘threatened’ by forces–only for it to rise to new levels of scale and innovation. For example, with the increasing use of cloud computing, companies will very unlikely to prefer having their own set of IT assets and infrastructure. A simple “Lease and use” model is something which helps them to be free from maintaining and handling the issues related to their own IT infrastructure and the very same time, it is cost-effective too. Considering the fact that revenues for a majority of outsourcing service providers came from application development, application maintenance and implementation, and the fact that there was no software to install, maintain or develop in the cloud model – the cloud was seen as a threat to the outsourcing model. Today, outsourcing service providers have converted the cloud threat to an opportunity by offering services to organizations who want to build their own private clouds, or those who want to migrate from traditional on-premise solutions to the cloud. In summary, outsourcing will remain, and will continue to remain a formidable force – though the scale and the type of services to be offered in the future will significantly differ.Having said this, how would the future of outsourcing really look like? The speed with which we see a shift in trends and technologies in IT industry, it is really tough to take a stance and comment about where is IT Outsourcing heading to? Still few macro trends are there that we can see on the horizon, and which can form the core components of outsourcing business models in the near future. Below are the few trends, which we feel would play a very important role in deciding the future of IT outsourcing industry.
Trend 1: A technology shift to “Everything-as-a-service”Started with “Software-as-a-service” to”Infrastructure-as-a-service” to “Platform-as-a-service”, thanks to the cloud, we have reached to a state where the model has been changed to “Everything-as-a-service”. Today, almost every service can be offered in a virtual way. Consumers, hence, will not worry where the service is coming from. The word ‘offshore outsourcing’ may lose its relevance and a more appropriate word such as ‘virtual sourcing’ may eventually take its place. Services will be consumed via a self-service model, and will require minimum intervention from the service provider. While today we already have Storage-as-a-service, Communications-as-a-service, Network-as-a-service and monitoring-as-a-service, the future will represent a catalog driven model, where customers will pick and choose services off the shelf with defined expiry dates.
Trend 2: Future belongs to automated self-service platformsMost IT services are now commoditized, and this trend is likely to continue in the future. What will define outsourcing service providers is the ability to offer automated self-service platforms which will allow customers to use the platforms of the service providers for performing tasks such as testing or development. Organizations will have the option of creating their own tasks on these self-service platforms, and monitor them using sophisticated tools provided by service providers. For example, a customer may use a standard platform of a service provider to centralize processes, and apply common standards and rules to ensure consistent practices across global locations. Using steps and processes clearly defined in the platform, global organizations can apply automated technologies to enforce enterprise policies.
Trend 3: Coming together with an “Investor-Venture” mindsetIn the future, we may see organizations take an investor like approach and fund joint initiatives with outsourcing service providers, where both sides invest to create a favorable risk-reward ratio. The co-creation can be in the form of products or service-led innovation, where the client organization looks to make investments to boost the service provider’s capability to develop products or innovative services and reduce time to market. This will not be similar to marketing alliances, but will involve significant amount of research and time to improve a process or system. The same product or service may then be offered to other clients of the service providers, with the revenues and profits shared equally between the service provider and the client. For example, a large airline can use/offer its knowledge and expertise to a cloud hosting company in building a core solution for other small airlines with built-in frameworks, in association with a technology service provider.
Trend 4: Crowd sourcingWhile crowd sourcing refers to the art of using the power of the crowd to solve problems or tasks, it has not been harnessed to its full potential in the world of outsourcing. Going beyond the usual tasks of crowd sourcing, outsourcers will seek the help of the community in developing an algorithm, code a new program or create a new method to build a better IT architecture. To do this, outsourcers may set up a managed crowd sourcing model with the help of service providers, who may define the way the process must work through a well defined workflow or template. Crowd sourcing has the potential to dramatically alter the way outsourcing is done today, as it allows outsourcers to tap individual talent located in disparate corners of the world. A good example of crowd sourcing is Silicon Valley start-up, Kaggle. This company has the world’s largest community of data scientists, and they compete with each other to solve complex problems. Prizes are given to whoever offers the best solution. Crowd sourcing can also help outsourcers develop quality solutions, as the community can rank the best solution for a particular issue or problem.
Trend 5: Outcome-oriented modelsWith the growing adoption of cloud computing and the popularity of the “pay for what you use’ approach, One can expect outsourcing agreements to be defined by outcome-based models where the service provider gets a huge opportunity to demonstrate its capability based on the level of efficiencies achieved or the market share gained. This is a win-win situation for both the service provider and the client, as it focuses on the value generated by the deal.However, as customer value is not a static asset, service providers will need to continuously reinvent themselves as markets evolve, technologies change, economies rise or fall and most importantly change based on what customers want and expect. If they succeed in doing so, they can easily convert small projects into engagements and engagements into long term relationships.