3 IT Outsourcing Trends that Are Challenging Tradition

1/16/15 11:12 AM iCorps Technologies

outsourcing

An organization’s ability to leverage technology that runs reliably and supports the business effectively often requires deep expertise, experience, and skills. If that combination doesn’t happen to be in your internal IT department’s wheelhouse – or if resources are scarce or directed toward core IT services– IT outsourcing may be a practical option.

But times are changing. As more companies adopt digital strategies, outsourcing trends are out to shake up tradition – and IT:

Trend #1: Clouds in the Forecast

The popularity of technology outsourcing waxes and wanes, but this year it’s on an uptick – thanks, in part, to the growing number of cloud offerings for IT that are challenging traditional offshore and domestic IT outsourcing (ITO) models.

Back in 2011, in the PwC study, The Future of IT Outsourcing and Cloud Computing, PwC’s US leader of Technology Infrastructure Solutions David Stuckey noted, “Cloud computing, when done right, has the potential to actually replace, and not just augment, legacy environments while adding value by reducing costs and increasing agility.”

Four years later, cloud offerings indeed are proving their potential as viable alternatives to data center technologies, help desks, performance monitoring, storage backups, unified communications, and more. InformationWeek managing editor Shane O’Neill lists “Cloud vs. Traditional Outsourcing” as one of this year’s 4 IT Outsourcing Trends to Watch, and quotes IT consulting firm Pace Harmon partner David Rutchik, “Expect more companies to compare the prices and benefits of cloud services versus traditional outsourcing models as part of their strategies this year and next.”

Trend #2: A Shift in IT Thinking

Cloud-based offerings allow organizations to plug into an ever-growing grid of convenient, scalable services. In his article, Which IT Is Really Core?, InformationWeek VP and Editor in Chief Rob Preston notes, “FedEx is moving to outsource about 30% of its total IT work, mostly to cut costs but also to plug into expertise it doesn’t need full time, letting it scale up and down.”

The increasing availability and accessibility of as-a-Service solutions, though, are causing a paradigm shift in procurement. Referred to as Shadow IT, this shift – in which business units and users acquire and implement technology, often without the knowledge of IT – will account for 35 percent of enterprise IT expenditures being managed outside the IT department’s budget in 2015, according to Gartner.

But Shadow IT is just one example – and one symptom – of stodgy old IT thinking. Jonathan Feldman, CIO for the city of Asheville, North Carolina and author of the InformationWeek article, IT Control Is An Illusion, notes, “New technologies always go hand-in-hand with new business practices…As companies become more digital, IT must recognize that it needs to be the enabler and trailblazer, but not the sole source of digital tech.”

Letting go of old ways and control can be difficult, but entrusting others (cloud providers) to be accountable frees IT to enable outcomes that meet the needs as well as the pace of the business, its users, and its customers. Referencing a presentation by former Netflix cloud architect Adrian Cockcroft, Feldman says “Cockcroft made it clear what Netflix’s core business objectives were in its decision to use IaaS: It takes developers minutes to provision new IT resources, not weeks. And, ‘Speed wins in the marketplace.’”

Trend #3: Prioritizing Business Outcomes

India is the mecca for offshore IT outsourcing and software development. The model offers flexibility, a stable of resources, and cost savings – but multiple time zones, remote operations, and even language and cultural differences present challenges for collaboration and iterative development. Of course, there is a larger, ongoing debate about whether offshore outsourcing is a threat to IT jobs, the US economy, and even to innovation.

In an interview for the recent CNET Magazine article, Silicon Valley’s App Culture Eroding US Ability to Make Serious Software, Cambridge, Massachusetts-based Pegasystems’ founder and CEO Alan Trefler says “the biggest shock [in IT’s development since founding Pegasystems in 1983] was how this movement toward outsourcing eviscerated better software design.” Faster and cheaper don’t necessarily deliver on business or customer needs.

Feldman reports a similar sentiment indicated by General Motors CIO Randy Mott during his presentation at the 2014 InformationWeek Conference, citing “how expensive, slow, and undifferentiated traditional outsourcing work can be.”

Cockcroft, whose cloud outsourcing philosophy is the polar opposite of Mott’s IT-controlled, we-can-do-IT-better-in-house model appears to be directing companies to use outsourcing for exactly that reason. “Don’t do your own undifferentiated heavy lifting” was the “most tweeted takeaway from Cockcroft’s presentation,” according to Feldman.

Perhaps the expanded version of that takeaway is to utilize outsourcing to liberate IT from reinvention – not from its responsibility to enable game-changing business outcomes.