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6 trends in the world of sourcing

Auteur(s): Paul Cornelisse

After years of visible, invisible and often cold restructuring, early signs of optimism are beginning to be heard from service providers in the sourcing marketplace in the Netherlands. These early signs especially stem from the small and mid-sized suppliers. Starting in 2008 IT vendors downsized by making employees redundant and even today people are being quietly exited via the back door. The number of self-employed IT consultants has been steadily growing over the last several years and this was not caused by the appeal of interesting billing rates. Prudent management, cost consciousness and a keen eye for relevant service portfolio components are key. In 2012 and 2013 Capgemini and CGI conspicuously tried to replace rigid, outdated and hindering remuneration models by newer and more flexible ones. Courageous and in a way also quite understandable attempts but less publicly visible, low key attempts at implementing structural changes probably would yield better results.

As a result of rapidly changing technological possibilities a much bigger transformation is about to occur in the market of IT suppliers. Easy access to and accessibility of bandwidth, capacity and an instant availability of IT services seems infinite. According to insiders we ‘ain’t seen nothing’ yet. IT suppliers are trying to generate new business by emphasizing services around the big data, mobile and social media hypes, but the value created with these services is a far cry from those derived from the traditional IT-services. Often the time to market and life cycle of these new solutions is much shorter than before. This requires very creative, innovative, flexible and agile organizations. Frantic efforts by vendors to act as ‘cloud service integrator’ for their clients often turn out to have progressed much beyond PowerPoint ideas of their marketing and sales departments. So far the marketplace has reacted lukewarm to these overtures. In any case wallets haven’t been drawn.

6 trends in the world of sourcing

6 trends

  • There is no denying. The currently unleashed IaaS race is bound to lead to accidents. Extensive virtualization and e.g. new storage technologies are likely to cause casualties in these areas among the ranks of traditional IT service suppliers. An explanation for this is easy. The price per unit which IaaS service suppliers can invoice rapidly deteriorates year over year. Ever since Amazon – and in its wake Microsoft and some other giants – redefined the billing units CPU, Storage and Memory in the infrastructure space, most of the sales calls and operational discussions by the more traditional vendors suddenly became rather defensive and one-sided. The added value of having your own datacenter will steadily erode and will transform into a pure specialist service. Mission critical datacenters is an often touted pillar in the service portfolios of a number of mid-sized service providers.
  • More and more complete converged solutions will be offered. It won’t be known on what infrastructure platform and from which physical location the solution is offered. Neither what database is used nor how monitoring is done. Rapidly new, vertical, solutions are launched which are becoming ever more specialized and sophisticated.This adds to the pressure on IT service suppliers. A required high degree of flexibility and transparency with which services are offered (“eight dollars per user per month for the Planning and CRM module”) and associated price pressures. SAP, Oracle, Microsoft, IBM and other giants are reluctantly adapting to these market trends. Slowly, as otherwise it hurts too much. This month Microsoft announced price increases of some 30-40% for its SPLA prices for IT service providers. In essence they s ay: come and get it directly from us or from the Cloud. The value chain becomes compressed.
  • An important trend for IT- vendors concerns the optimization and extreme standardization of the management of their operational processes. This varies from standard service desk and service management reporting tooling, such as those from ServiceNow, Topdesk, BMC Remedy, to delivering completely automated end-2-end solutions for e.g. Mobility Management. The more recent IT-service vendors do not carry the burden of proliferating legacy and inefficiencies, created over decades, which allows them to start right away with automating preferably all service management and service delivery processes to the utmost. Customers have been wanting this badly for years. Manual and people dependent processes and reporting are being automated at ever increasing speed. Because of these developments the costs for IT-suppliers drop drastically. The number of incidents and associated escalations – P1’s – diminish rapidly. As a result the previously eroding margins of suppliers should potentially increase.
  • It will prove to be impossible for IT-vendors to keep abreast of all Application-, Infrastructure- and End User management trends and developments. Focus is essential. IBM, HP and e.g. Philips, lead by example by divesting large parts of their organizations. What keeps surprising us is the lack of real focus on the part of most of the IT-service suppliers. Deep down they still want to sell everything to everybody. To our amazement many mid-sized vendors currently even expand their service portfolio. Some exceptions aside. Saying ‘no’ takes guts.
  • Because of the previously described trends many customers in most cases end up with more vendors, varying from large to small ones and from generic to highly specialized ones. Multi sourcing in a perfect sense. Just as in his private life the customer has a need for continuity and stability in his/her relationship with a number of the existing suppliers. A real cultural fit with a few important suppliers becomes more important than ever before. A clear overview of the cohesion and complexity of the solutions chosen becomes ever important. Is this the Holy Grail for the IT vendor acting on behalf of the client as the (cloud) service integrator truly realizing an integration of on premise, legacy and cloud solutions? In this area as well, extreme standardization of processes will be essential.
  • The last trend worth mentioning actually concerns a trend for clients but it has great repercussions for IT-service suppliers. It is the shift, decentralization, of IT responsibilities to regional or local IT entities coupled with assigning functional ownership of applications explicitly to the business. This is often combined with a centralization in the IT department/CIO office of several facilitating roles and activities in the areas of a.o. compliancy and security, risk management, service & contract management as well as project management.

Paul Cornelisse – Director METRI
30-10-2014

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