The current economic downturn poses a problem for IT outsourcing service providers. Long-term investment in IT projects has generally ground to a halt. ROI is expected to be achieved with the financial year, and decision-making is taking longer as CIO’s and look at all delivery options.
Outsourcers are being asked to take on extra risk, for example moving to a cost per transaction rather than providing a resource-based pricing model. The question is: can they adapt profitably?
In the early days of outsourcing, businesses looked for IT service providers to reduce costs. Cost-reduction came from areas such as shared service models, shared operations infrastructure (firewalls, switches, disaster recovery sites), and elimination of IT staff management issues (absence, overtime payments). There was a tacit understanding that services would be delivered to the same standard as those provided in-house.
From this evolved a focus on service improvement where factors such as downtime, system availability and helpdesk response times were incorporated into service level agreements (SLAs).
As the outsourcing market matured, provision of IT services to an agreed level became the starting point. Outsourcing began to play a longer-term, more strategic, role. Value became measured in terms of business outcome – project ROI (Return on Investment), for example.
The current economic downturn now poses a problem to IT Service providers. Long-term investment in IT projects has generally ground to a halt. ROI is expected to be achieved with the financial year, and decision-making is taking longer as CIO’s and look at all delivery options – both internally and externally. Service providers are being asked to take on extra risk, for example moving to a cost per transaction rather than providing a resource-based pricing model.
The golden age of outsourcing has gone and changes need to happen within all parties. For the business, this means reducing the number of vendors and building closer and stronger relationships with the chosen suppliers. To be successful in the new economy, IT vendors will have to adapt to creating risk-based supply models and both understand, and demonstrate a greater awareness of the business value they deliver.
