Co-authored by Al Matukonis.
The tremors of the digital age are creating deep fissures across the business world. Yes, advances in cloud computing and automation have given enterprises whole new capabilities, but these capabilities require organizations to rethink how they source and how they manage those sourced services. What were once discussions primarily about cost savings have given way to discussions about agility, speed, convenience and security.
For many organizations, this shift in priorities has brought the idea of insourcing back to the table – but with a significant twist. Insourcing today doesn’t necessarily mean repatriating and rehiring large numbers of delivery employees. It means weaving together an infrastructure that replaces outsourced labor with new solutions and emerging technologies architected, guided, managed and sometimes delivered by an insourced IT function. This woven-together environment is based on sourcing relationships that are smaller and more highly targeted than the ones enterprises have engaged in the past.
What’s driving this change? The ever-increasing availability of smarter and faster technology and the need for agility to take advantage of it. If you can purchase a server by entering your charge card number on an internet form and have a server at your disposal within minutes, why would you want to wait hours or even days for a server from your current service provider? And why would you need a long-term contract to secure such capacity? The need to meet customer expectations and the increased awareness of what is now possible is driving business at an ever-increasing pace.
At the core of meeting these demands are two trends:
- Cloud computing. The cloud is the commoditization of IT services on which today’s ideas about agility, economy, flexibility and simplicity are based. As cloud providers continue to refine their offerings to meet the more sophisticated requirements of larger corporations, managed services providers are reengineering their solutions to be more cloud-like and even, in some cases, building them on Amazon Web Services’ or Microsoft’s cloud. If a provider doesn’t meet an enterprise’s requirements, the enterprise can simply source the solution itself. The ease of sourcing cloud services today changes how the enterprise delivers the service – replacing resources from a service provider with a smaller, insourced management team with a different set of skills.
- Intelligent automation. As enterprises increasingly incorporate automation, including robotic process automation, autonomic systems and cognitive agents, they are able to improve efficiency and agility and free up employees to focus on higher-level tasks. In fact, findings from the ISG Automation Index™ show that intelligent automation can significantly lower outsourcing costs. But traditional service providers are finding it difficult to reskill their employees and deliver services as fast as or faster than an in-house organization can source best-of-breed cloud-based and automation solutions. Introducing automation with pilots and uncertain outcomes to an existing sourcing agreement with locked-in scope and pricing can be difficult because doing so is typically not in the provider’s self-interest. Enterprises will want to maintain the flexibility to introduce new technology in their agreements by renegotiating contracts when possible or considering a multi-supplier environment.
So, what does this new form of insourcing mean for today’s CIO? For one, choosing from an à la carte menu of services and maintaining an environment in which those services interact requires a different set of in-house skills that, in the past, may have been left to managed services providers. This means CIOs will need to build and manage an organization that has expertise in architecting an environment that meets both present and future business requirements. It means CIOs will rely more heavily on a lean, highly technical in-house staff that is adept at procuring, integrating and managing technologies and services and that can help guide the determination as to whether to source externally or internally.
Thinking about insourcing in this new way offers an alternative. Based on the abundance of technology solutions in the marketplace today, enterprises now can consider building in-house solutions that service providers can’t or won’t deliver. Navigating the challenges and opportunities of these decisions requires an IT strategy that takes into consideration the extent to which a company can or should depend on its own skills – or seek expertise elsewhere.
ISG works with organizations to build, enhance and support their IT and business strategies to take advantage of today’s technological advances and the leading practices in sourcing and insourcing. Contact me to discuss further.
About the authors
Tim Jones is an experienced leader who is passionate about his clients and their success. As a trusted advisor, Mr. Jones brings 29+ years of experience assisting clients through multifaceted business transitions using fact based data and solid management/methods.
Mr. Matukonis provides ISG’s clients with creative solutions and counsel based on his over 25 years’ experience in technology service delivery. In supporting his clients he draws on a wide range of experiences, as a developer, a CIO/CTO, a Supplier technology delivery executive and now as a ISG advisor.