Outsourcing tech: the shift from IT giants to specialist platforms

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.