Marc Dowd
Marc Dowd (Principal, European Client Advisory)

Outsourcing is one of those things that everybody in digital leadership gets involved with at some point. The question that is important right now is how well you do it and what could you do better?

Over 90% of large organisations rely on external service providers to deliver reliable technology and business process services. This is accelerating as we move from a period of extreme volatility and change to a steadier but still very uncertain business environment. The decisions that business leaders are making now will set the stage for their organisations over the next few years.

Why Focus on This Now?

IDC saw an exceptional period of growth for the technology sector globally in the first half of 2021. We forecast that growth in IT spending will reach close to 9% year-on-year for the full year. How much are you spending with your outsourcing partners? Are you spending it in the most effective way possible?

IDC research shows that European managed services spending in 2021 is more likely to stay the same or increase rather than decrease across all sectors and all European countries. Clearly, enterprises are taking the reins off their spending cuts. In all countries surveyed, the number of firms cutting managed services spending in 2021 has fallen. Moreover, in 6 out of 8 countries surveyed, IDC observes a rise in the number of firms increasing managed services spending.

Another recent IDC study showed a marked change in datacentre services. “The current forecast differs quite significantly from the previous one,” said IDC’s Libor Dvorak. “The main reason for the forecast update is the fierce growth in demand for cloud services, strongly driven by the COVID-19 pandemic. While platform as a service (PaaS) and infrastructure as a service (IaaS) expanded by over 40% year on year, traditional offerings, such as virtual private servers, web hosting, and dedicated servers, grew much more slowly but still well above the average growth rate of traditional IT services. The managed services segment was the only traditional datacentre services category to record considerable growth. New opportunities are arising related to hybrid IT, managed multicloud, and hybrid cloud.”

The Outsourcing Dilemma

The problem with outsourcing from the perspective of the digital leader is that it requires a very different skillset. Employees go from being the internal expert who was skilled at delivery to a role of ensuring someone else delivers. For many, this is, at least to start with, an unwelcome change. Have you trained your IT staff to adapt to this change?

Delivering through a third party can lead to a standardisation that matches the contractual agreement but loses flexibility and innovation. It takes expertise and skill to avoid the roadblocks and lack of agility that can come with delegating to your outsourcer(s).

In theory, outsourcing is the cheaper option. I would comment that this is only true if you are adept at determining what should be outsourced and controlling the risks and consequences of what is most often a huge change.

I have seen organisations fail spectacularly when they have outsourced without adequate preparations. A good partner is essential, but also strong governance and controls are necessary to ensure continued communications and relations with your outsourcing partners.

Outsourcing Shifts

In this period of uncertainty, the need for business agility is high. But the internal pressure is frequently to opt for managed hosting, managed cloud services or outsourced business functions to stay focused on the main business.

To get that right, you must check that you are doing the best you can to be a good manager of, or partner to, your outsourcers. This means better communication and an understanding of how to get greater flexibility.

Are Your People and Processes Up to the Job?

If you are considering outsourcing new areas for the first time, then this is an opportunity to get it right. If you have had an outsourced relationship for a while, have you reviewed it recently? Could it be better?

Are you getting the innovation and agility that you need? If not, how do you change that?

This topic was discussed by the Digital Leaders Community on Thursday October 28. It was a lively meeting with lots of good ideas and suggestions shared by the attendees. We do hope that you will enjoy the summary of the meeting when it comes out. Please get in touch with Marc Dowd if you’re an IT leader in a European organisation so that we can invite you to be part of our community and the ongoing conversations.

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