Royston Morgan

The global technology industry is facing shockwaves as the outsourcing trend of the past decade goes into reverse. Where once the world’s businesses handed over the management of all their tech needs to single IT giants, today they are more likely to work with a wide number of specialists. 

The shift away from single-vendor outsourcing has been stark. Consultancy ISG says its data shows that in 2008, 42 per cent of the Forbes G-2000 largest global businesses outsourced IT to single companies, but now that has declined to just 15 per cent. This is having a damaging impact on many IT giants that offered businesses significant cost-savings and economies of scale, often using low-cost expertise in India. 

“Traditional outsourcing in technology is changing as much as it has at any time in its history,” says Steven Hall, president, Europe, Middle East and Africa, at ISG. Driving this change is the rise of software-as-a-service and the cloud. “The client says that instead of going to IBM, DXC, Capgemini, ATOS or one of the Indian providers to run my datacentre, I’m actually going to move my workload and applications to Amazon cloud. Or instead of doing human resources applications in-house, I’m going to move them to Workday,” explains Mr Hall. 

Over the past five years, a range of revolutionary technologies have come to fruition that are set to transform business processes, from cloud services and edge-to-cloud computing to robotics, artificial intelligence (AI), machine-learning, blockchain and the internet of things (IoT). Many of these technologies are offered by specialist startups. Client companies are partnering with these specialists, while established IT giants are looking to acquire them as they expand their offers into the new fields. 

In future, no single company will have all the technology skills necessary to run business operations, says Manish Vyas, president of communications, media and entertainment at Indian IT giant Tech Mahindra. “The speed at which tech is attacking us is crazy. The world will move towards specialisation and software is not just something to outsource; you have to have capabilities in-house and you will need a collaboration model.” 

But some wonder whether collaborating with multiple IT specialists rather than outsourcing to a single partner will create more problems than it solves. Chief information officers (CIOs) and chief data officers are faced with overseeing many different providers, and extracting the best value for money and efficiency from them. This introduces a high level of complexity and multiplies the threats to data security and privacy, ramping up the dangers of outages if problems hit any one of these technologies. 

To address this, a range of mid-sized IT vendors are offering to integrate the multiple specialist providers. Luxoft is a Swiss-based software business spun off from a Russian IT firm. It employs 13,000 staff, many in Eastern Europe, and many of whom are highly qualified data scientists and software engineers. They can both build specialist technology services and integrate the multiple services used by businesses. 

As managing director for digital enterprise Sam Mantle says: “We compete against the large Indian companies and giants such as Accenture where they have pockets of excellence. Then we compete against very niche vendors that are the best in world at IoT or machine-learning. 

“But where they struggle is that they are not able to connect the dots between their niche areas of expertise and the broader set of capabilities you need to implement machine-learning. We are in a sweet spot; we can connect the dots across those different tech stacks and relate them to the industry domains where we operate.” 

Mr Mantle cites niche specialists such as Ensono, a provider for cloud services and devOps – aiming to unify software development and operation – Precision Health AI and specialist blockchain provider Datarella. 

For Punit Bhatia, partner at Deloitte UK who specialises in outsourcing, a big reason for the demise of large monolithic outsourcing contracts is that they often failed to deliver on their promises. Clients thought they were buying a single integrated service, but, as Mr Bhatia says: “They found the organisations were so big, you may as well be dealing with multiple providers. They weren’t co-ordinated enough. You talk to the infrastructure arm, the applications arm, then business process outsourcing; they speak different languages and can be difficult to co-ordinate among themselves.” 

Once you have mastered the process of managing multiple vendors, you will understand the value of this approach and see the value it brings to the organisation’s growth and success

He points out that outsourcing decisions vary by department. Finance is rarely split into different contracts because it requires too many handovers of data between providers. If something goes wrong, it can be impossible to identify which supplier was at fault. But in human resources, there is no single service which solves all the challenges. There are only two or three providers that handle payroll globally, while learning and development is often done regionally. HR often has little choice but to use multiple providers. 

The single-vendor model can be attractive to mid-sized companies, says Mr Bhatia, as breaking IT work into specialisms would make the projects too small to warrant much attention from each tech specialist. Pooling all spend into one provider gives greater firepower. He cites specialist robotic process automation companies such as Blue Prism, Automation Anywhere and UiPath. 

Meanwhile, Serhiy Kozlov, founder of software company Romexsoft, points to Deloitte’s 2016 Global Outsourcing Survey, which shows that 34 per cent of companies rate themselves as above average for maintaining multi-vendor environments. “Once you have mastered the process of managing multiple vendors, you will understand the value of this approach and see the value it brings to the organisation’s growth and success,” says Mr Kozlov. 

Collaboration with tech startups and outsourcing to multiple vendors is here to stay. The challenge for CIOs is to discover how to make the multi-vendor strategy work effectively. 

Article source: https://www.raconteur.net/business/outsourcing-shift-it-giants-specialist-platforms

The death of Carillion triggered an outpouring of theories about the shortcomings of public sector outsourcing. But it’s worth remembering that until that fateful moment in January, the industry was basking in a long series of successes. 

At the beginning of the year, 200 small companies a week were signing up to the Contracts Portal, a scheme created by the government for small and medium-sized enterprises (SMEs) to compete with big corporations for outsourcing contracts. The supplier list passed 22,000 members, up 53 per cent in 12 months. Great news. 

The government announced it was on target to get one pound in three of outsourcing contracts awarded to SME bidders by 2022. That’s two years later than planned, but still good news. 

And the Crown Commercial Service (CCS), founded in 2014 to improve the negotiating firepower of the civil service, was growing into a mature, sophisticated troubleshooter. 

All seemed rosy. And then Carillion went bust and the entire industry went into panic mode. Leader of the Opposition, Labour’s Jeremy Corbyn, called it the beginning of the end for outsourcing. Confidence evaporated and ever since the outsourcing industry has been in crisis. 

Front and centre is the problem of oversized bidders. Yes, the SME bidders were growing in numbers, but the mid-size were getting hammered. 

Denise O’Leary, boss of Purpol Marketing, a construction industry bid-writing specialist, witnessed the calamitous erosion of mid-sized bidders. “The government procurement method of placing value on the largest organisation had already driven the collapse of many regional and local contractors from the supply chain,” she says. 

“In the recession, the larger companies chose to win projects at under cost to keep their teams busy, and cash-strapped local authorities took as many savings as they could, even if they recognised that their selection may not be sustainable for the duration of the project.” 

Big bidders built a track record of handling big contracts, despite the wafer-thin or negative margins, leading to further bid wins. Ms O’Leary puts it this way: “Large companies had most evidence of past projects, which were given highest weighting in the assessment model. Many of these had to be in the last five years, so only organisations that had chosen to make a loss and taken jobs then had the case studies to prove their suitability for future ones. This then squeezed more and more contractors out of the supply chain.” It was a recipe for disaster. 

A second glitch in the matrix came from the evaluations used by councils. Helen Randall, partner at law firm Trowers Hamlins, helped negotiate contracts with Carillion and other major public sector contractors. She says the quality component was underrated. “Most PFI [private finance initiative] contracts were evaluated on a 60 per cent quality, 40 per cent price basis. However, experience has shown that if a public authority applies an evaluation ratio where price represents anything more than 30 per cent, then inevitably price will always trump quality,” says Ms Randall. 

Another problem is that falling budgets led to falling expertise. Paul Dossett, head of local government for Grant Thornton UK, saw this at first hand. “Headcount reduction due to prolonged austerity has led to many councils not having the necessary in-house expertise to effectively draw up contracts and procure suppliers, or the capacity and capability to undertake the correct due diligence and effectively monitor contracts once they have been let,” he says. 

His view is supported by Ms Randall. “As someone who has worked in both the public and private sectors, I can see both sides of the picture, but many civil servants haven’t had enough exposure to the business world so they don’t understand how a bid is put together,” she says. “I’m a strong advocate of seconding civil servants into the commercial sector so they can understand how profit is calculated and why you need contracts that will allow contractors to make a profit to stay afloat.” 

In theory, the CCS should swoop in to help beleaguered public entities. But it failed to notice the problems at Carillion. And it arguably failed in its primary duty to help state bodies negotiate viable deals with the company. Worse, claims James Bousher, manager at consultancy group Ayming, the CCS strategy for helping is flawed. 

“The CCS attempts to do this through maintaining their strategic supplier list, but it only contains around 30 suppliers and their impact doesn’t reach far beyond central government,” says Mr Bousher. “There’s no clear path, or necessarily even expectation, for a devolved contracting authority to raise concerns as a warning to the wider public sector. Even then, once bad contracts are identified, the real challenge is working out what to do with them.” 

While we tend to only hear about failing outsourcers and failing councils, in reality the majority of councils are well run and most outsourcing contracts deliver what was promised

Other helpful tools are underused. Open book costing, where margins are agreed with the buyer, are promising, but not routine. The British Standard on collaboration (BS 11000) has a poor take-up. In theory, it should help contracts be shared between multiple parties, removing the “winner takes all” problem of today. 

In the final analysis, it is worth remembering that most public sector contracts work well. As Mr Dossett of Grant Thornton puts it: “While we tend to only hear about failing outsourcers and failing councils, in reality the majority of councils are well run and most outsourcing contracts deliver what was promised.” 

Carillion should not undermine the role of outsourcing in the public sector. An ecosystem of outsourcers can supply agility, technical expertise, focus and a motivated workforce. But the landscape must change. Mid-sized bidders must thrive. Contracts must include larger provision for quality. The public sector must foster talent, experienced in deal-making and the CCS is critical in that mission. 

Above all, the public sector must learn that outsource partners can’t live on below 3 per cent margins. Cheap does not equal good. If Carillion offers one lasting lesson, let it be that one. 

Article source: https://www.raconteur.net/business/outsourcing-sector-can-learn-carillion-collapse

All too often, failed outsourcing projects stem from a breakdown in relations with the customer and it’s usually the supplier who gets the blame, accused of overpromising or exceeding the agreed time or budget. But times are changing for maligned outsourcing suppliers as customers start to accept greater accountability.

As Anthony Potter, partner at consultancy Elixirr, says: “Successful deals tend to be characterised by a change in the nature of the relationship between the outsourcer and the client towards true partnerships, rather than transactional relationships. Such a partnership means both parties are incentivised by the same outcomes and aligned to the client’s objectives.”

Changes in the supplier-customer relationship are also driven by other factors, chiefly the pace of technological change and the unease prompted by Brexit. It means that no longer are lengthy, costly and rigid deals the norm.

Punit Bhatia, partner at Deloitte, says typical contracts used to be for ten or even twenty years, particularly in the public sector, but three to five-year deals are more typical now. “People want certainty over their cost profile over the next five years. Neither the client nor the supplier really know what new, game-changing technology will hit them in another two years, so people are having to be a lot more flexible at contracting,” he says.

“There is also so much economic uncertainty out there that people don’t feel comfortable committing for a long time.”

In addition, there is a growing need for an agile way of working, something particularly being seen in the digital sector, and this is changing the dynamics between suppliers and customers. James Cannings, co-founder of design and build agency MMT Digital, whose clients include Vodafone, says the majority of request for proposals now reference a requirement to work in an agile way.

“For agile delivery to be successful, it often requires the wider organisation to adjust, and that is rarely backed up with a deep knowledge of what is required in terms of skills, technology and culture to achieve success. Often it is seen, incorrectly, as a silver bullet to the delivery of a successful project and something that, in the most part, can just be outsourced.”

As he says, forming a single team between the customer and supplier is the key to agile working. “Everything has to be 100 per cent transparent to ensure that every individual on the team understands the business challenge and the end-user needs, so they can input into the process every step of the way,” says Mr Cannings.

His words resonate with those of Mr Bhatia, who cites lack of change management as the number-one cause of outsourcing relationships failing, as evidenced by Deloitte’s 2016 Global Outsourcing Survey.

“One of my clients is a major insurance provider and they are carrying out an outsourcing programme across a number of functions, putting change management at the core of it. We have carried out training with their people in each area of the business and had them appoint ‘change champions’. It is saying to the client in each case, ‘you are responsible for driving this change, no one else will do it for you’.”

Successful deals require trust and transparency, where the supplier is open about staffing, timelines, issues and risks, and the customer isn’t trying to bully the supplier into delivering miracles

It is part of a wider shift towards both customer accountability and greater honesty between the two parties. John Oswald, global principal and advisory at digital innovation consultancy Futurice, which works with multinationals on digital strategy and innovation culture, says: “Successful deals require trust and transparency, where the supplier is open about staffing, timelines, issues and risks, and the customer isn’t trying to bully the supplier into delivering miracles.”

Mr Oswald says he is starting to see a shift from a more traditional customer-supplier axis to a more collaborative approach. “Customers are increasingly willing to ‘co-create’ the desired outcomes, rather than simply issuing a tender and expecting a partner to be as aligned and capable as the tender document demands,” he says.

It is also a trend being seen by Rajesh Subramaniam, chief executive and managing director at business process outsourcer Firstsource Solutions. “There has been a definite cultural shift towards clients engaging with outsourcers to make a success of their partnerships,” he says. “They need to be able to trust their outsourcing partners to help them ride the wave of change, rather than being pulled under by it. For example, in our client relationships, we’re seeing an increase in project management and strategic planning capability.”

There is a definite change in the air, not least the cultural shift taking place as customers realise the necessity and wider benefits of working more closely with their outsourcing partners. But there is still work to be done, on both sides.

Mr Bhatia says he has one client just starting out on the outsourcing journey and they “can’t understand why the supplier can’t just do it all”, yet suppliers can be their own worst enemy. “In the heat of the sales process, many are still promising clients that they can drive this process for both sides,” he says.

Overpromising is one of the common reasons for a relationship breakdown between customer and supplier. As Mr Oswald says: “If expectations are sky high and managed through a procurement department, it’s highly likely that the supplier’s performance will be unsatisfactory.” But if a customer and a supplier can align objectives and responsibilities from the start, the project has a much greater chance of success.

Dave Walker, director of technology at pay-as-you-go storage company Lovespace, outsources the organisation’s cloud-hosting to Cogeco Peer 1. Having been involved in both successful and unsuccessful outsourcing projects, it is clear “you don’t simply hand over the risk and expect to walk away with anything close to a winning formula”, he says, concluding: “It is a relationship which needs open and constant communication to build the trust needed that both sides are looking out for each other’s best interests.”

Article source: https://www.raconteur.net/business/strong-partnerships-vital-outsourcing-success