IBS Journal May 2017
37
a significant impact on the efficiency and productivity of the client.
While there are significant headwinds for the outsourcing industry, the core value proposition of outsourcing is still valid – that organisations do not need to maintain in-house capabilities for functions outside the main focus of business. Thus, they will need to determine a framework for their outsourcing relationship.
While selecting a partner, we need to remember the following capabilities:
1. Availability of local offices: In the new environment, it is imperative that the outsourcing partner carries capabilities for local staffing.
2. Process automation capabilities: Technology enabling robotic process automation is now mainstream. Thus, the outlook for process outsourcing has moved from “outsourcing” to “automation”. The ideal outsourcing partner should have significant capabilities in process automation.
3. Emerging technology capabilities: We are witnessing several disruptive technologies across industries. Hence the outsourcing partner should have demonstrative capabilities in the likes of blockchain, FinTech, cloud deployment and analytics.
4. Transformation consulting capabilities: Clients expect the outsourcing partner to advise them on the roadmap for outsourcing arrangements. Hence the outsourcing partner is expected to serve as a consulting partner in addition to being a service provider.
5. Depth of domain expertise: Business models are evolving across industries, and the outsourcing partner should have significant domain expertise.
An example of an outsourcing deal leveraging emerging technology, moving merely from headcount reduction to process capability enhancement, is the arrangement
between Deutsche Bank and Hewlett Packard Enterprise (HPE). This has helped Deutsche Bank optimise IT related infrastructure costs through HPE providing dedicated on demand datacentre services like storage, platform and hosting – using its customised cloud solution Helion.
There have also been developments in the outsourcing models adopted by companies across the globe. Some of the more prominent partnership structures in place include:
1. Pay-as-you-go models: Clients are moving from FTE-based models to pay-as-you-to or transaction-based pricing
2. Risk and reward sharing mechanisms: Discerning clients expect the outsourcing partner to share part of the risks and rewards of productivity improvement
3. Multi-partner arrangements: Outsourcing arrangements are moving from a “strategic partner” to “best of breed” approach
4. Open contracts: From the earlier model of longer term contracts with firm commitments, contract periods are getting shorter, with clients also insisting on easier exit clauses.
This can be illustrated by the programme embarked upon by Commonwealth Bank of Australia which has adopted a multi-partner, cloud-based IT outsourcing model strategy allowing its applications to be shifted easily between different cloud providers, thus moving to an open contract model. The bank switched to a pay-as-you-go IT outsourcing model, cutting some infrastructure provision and maintenance costs by 40%, and reduced go to market time for new applications significantly.
Ultimately, the IT outsourcing industry has a lot of headroom for growth. However, there will be significant changes in growth drivers and client preferences over the next few years.
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