Since the late 1980s, commercial technologies have driven efficiencies, and efficiencies have driven IT sourcing models. The prevailing technologies of each era have had a profound influence on how and what outsourcing service providers offer their enterprise clients and on how those enterprises clients make sourcing decisions. The last three decades can be broken down roughly into three eras:
How Does Technology Drive Enterprise Sourcing Decisions?
Digital architectures, methodologies and tools have evolved quickly over the past few years, and we are now seeing a rapid adoption of cloud-based hosting, as-a-service offerings, Agile and DevOps development methods and automation toolsets. Providers are exploiting these new capabilities to deliver digital services in a significantly more productive manner. Increasingly, sourcing model proposals are aligned by industry vertical and product. As enterprises adopt DevOps, they are seeing the path toward continuous delivery enabled by automated testing and deployments.
Case in point: a recent full-scope IT sourcing transaction for a Forbes 2000 manufacturer included all IT infrastructure towers and application maintenance, enhancements and development. The manufacturer’s IT environment was built on primarily legacy architecture with a few pockets of Agile development and cloud-hosted applications. The company was essentially in its infancy from a digital-transformation perspective.
Prospective service providers were asked to price each infrastructure tower and each application functional area in a traditional, standalone manner as the client reserved the right to award different towers to different providers. The providers were market competitive with pricing responses within a reasonable deviation of one another for all towers and application components. The company then asked the providers to re-price assuming they were awarded all towers and components. This approach enabled the providers to design solutions that included a digital roadmap to progress the environment toward an integrated digital end state. The pricing for the integrated solution was twelve 12-15 percent less than the sum of the individual tower prices. The integrated solution pricing also included the provider’s investments for implementing a transformation roadmap. The benefits were real and committed to the client in the form of a fixed price with productivity baked in over the five-year term of the agreement.
The Key to Successful Sourcing Is To Understand Your Enterprise Agility Profile
Enterprise sourcing buyers must understand how integrated and product-aligned operating models can drive efficiencies in their application portfolio as well as in their IT ecosystem and organization. With this understanding, buyers can work with providers to establish a realistic digital roadmap that considers different risk profiles across the application portfolio and supporting infrastructure. Mission-critical legacy applications will call for a different transformation approach than a business-enabling mobile application focused on speed to market. For most organizations, the majority of the application portfolio lies somewhere in between these two, where a hybrid transformation approach may be more appropriate.
Digital tools, methods and architectures have evolved so transformation is achievable, risks are containable and costs are manageable. Selecting the right service providers, designing a target operating model and establishing an experienced team to drive transformation are critical to success.
ISG helps enterprises understand the technology market and how to work with service providers for the greatest outcomes. Contact us to discuss how we can help.