Economic Times, India
India at heart of 21st century outsourcing
[ THURSDAY, APRIL 21, 2005 12:53:30 AM]We are at the cusp of a fundamental shift in the way organisations think about outsourcing. A few of the world’s largest buyers of IT services are re-examining their sourcing strategies, and beginning the move towards a new approach to outsourcing.
There is new evidence that is proving out this shift. Recent announcements by the big consulting behemoths including IBM, Accenture, and EDS include reports of smaller outsourcing contracts, splitting deals with competitors, unravelled deals, and new competition.
While Forrester Research estimates that the average Fortune 500 company spends close to $400 million, or 3.8 percent of revenue, annually on Information Technology, and this figure is only expected to grow, the truth is that many companies are not satisfied with the results from their IT investment.
In some of the world’s largest companies, CEOs and their senior management teams are thinking about IT in a very different way. One of the most significant changes we observe is that the old models of IT sourcing are being discarded and a fundamentally different strategy is emerging. This new approach seeks substantially better results for their business.
This new sourcing strategy puts competition at its core. Global industry leaders and some of the world’s largest buyers of IT, including JP Morgan Chase and Dow Chemical, are moving away from monopoly agreements and introducing the dynamics of competition. Three traditional approaches to IT sourcing are:
1. In an external monoplogy, a company outsources the bulk of its IT to one major external provider. By removing competition, innovation is stifled, control is lost, accountability is limited.
2. An internal monopoly is created when companies rely on internal staff for the vast majority of IT. While there is a theoretical benefit, most internal IT organisations are not well aligned to the business, not subject to competition, and not held to the same standards and expectations as external providers.
3. A mix and match model consists of a combination of internal and external approaches and is used by most companies today. The greatest inefficiencies in this model are found in the way external providers are selected and managed. Most organisations use a `best bid’ approach for each engagement. This approach has the benefit of competition but loses knowledge as companies change providers for projects; this model also fails to foster an environment where providers and internal employees work together to achieve the clients’ best interests.
Some organisations are refusing to follow the three IT sourcing models described above and
are taking an entirely different approach.