Outsourcer or Service Provider? You decide!

By | January 14, 2013

It’s been a while since my last post, but the last quarter has been frantic period of focusing on finalising deals with many of our Service Provider partners and on finalising our operating plan for 2013. As a result the first thing that I need to say is ‘Happy New Year’. So, Happy New Year!

Now we’ve got that out of the way, let’s move onto my first observation of 2013 – call it a prediction if you want, but it’s a rather obvious one, to me at least.

Let’s start with some context. As most of you will know, I spend my working life focusing on helping the partner organisations that participate in EMC’s Velocity Service Provider Program to develop, sell and deliver services based on EMC technology and services. The Velocity Service Provider Program a framework for organisations that want to work with EMC to create, and more importantly to sell, IT services with cloud-like delivery models. By ‘services with cloud-like delivery models’, I mean services that are based on the core principles of multi-tenancy, elasticity, metering of utilisation and the rest of the features that are the new-normal characteristics of modern IT services. Stuff that was actually quite radical when it first started to appear 5 or 6 years ago, but we all take for granted today.

Surprisingly for some, there are actually a few different kinds of organisations that participate within this program. You can find a full list on EMC’s website in this section about Velocity Service Providers. If you look at the partner listings on this site, you’ll see that you can place the the partners that we work with into a few different categories; the Global and National Telecoms Operators, the Hosters, the IT Service Providers and, of course, the Outsourcers.

I’ve been working with a few Outsourcers over the last couple of weeks, and it’s this last category that I want to focus on today. So, what’s the obvious observation that this is leading towards? The simple fact that Outsourcers need to destroy their business model if they want to continue to be successful in the future. OK, ‘destroy’ might a bit strong, but it’s someone ironic that Amazon Web Services calls their global customer and partner conference re: Invent (hinting of course that they are reinventing IT), when it’s one of their main groups of competitors that really needs to do the reinventing of their business model in order to continue to be successful.

Pressure Mounts on OutsourcersWhy do outsourcers need to change their business model? Because they face pressure and competitive threats due to some dramatic changes in the way in which organisations are buying IT services. So, what are these changes?

Firstly, when it comes to running customers’ existing IT, labour arbitrage from relatively low-cost labour sources such as India continues to pose a real threat to Outsourcers, especially those that have not yet globalized their delivery model or perhaps don’t have the scale to do so. You also need to add to this the threat from the industrialized infrastructure platforms created by global cloud Service Providers. Luckily, the Outsourcers can compete with organisations that are built on low-cost labour by leveraging IT industrialization themselves, or by partnering with organizations that do so.

What about the innovation spend segment? Isn’t there an increase in the proportion of organizations that are happy to take a portfolio-based approach to the procurement of new IT Services, buying individual services from individual providers, rather than having a monolithic outsourcing contract for the supply of all IT-related services?

If you believe that this is the case, surely this trend will result in the fragmentation of customers’ IT services spend as they source services from suppliers that they consider to be the best fit for each specific requirement. A great example of this is the adoption of Software-as-a-Service (SaaS) applications in Enterprises, where business users have shown a tendency to buy applications that meet their needs directly from SaaS providers, sometimes completely ignoring their IT department or contracted outsourcing partner in the process and maybe causing some interesting data integration and compliance issues as a result.

Outsourcers that want to compete in this new landscape should consider building their own cloud capability and services catalogue. Those that do will find themselves in a better position to benefit from this change in customer behaviour than those that deny, ignore or try to sell against this change. And yes, this means that I think that Outsourcers need to think and act a lot more like Service Providers in the future if they want to continue to be successful!

 

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  1. Pingback: What is ‘The New IT’? | Ian Massingham's Blog

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