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IT Outsourcing: The unreasonable strategy of traditional providers

publicado por Alfredo Saad

Figura - IT Outsourcing: The unreasonable strategy of traditional providersLet’s resume the discussion proposed in our article “IT Outsourcing Revisited: Providers Should Change Their Attitude or else …” , published last May31st here at TI Especialistas portal.

Another approach to this topic appeared in October 26th, 2015 when Phil Fersht (CEO at HfS Research) published the article “Outsourcing is on life support, with many providers failing to invest in As-a-Service” whose reading is recommended. HfS is an organization dedicated to study and research the outsourcing market.

In his article, Phil states that if he has to hear another provider sales executive whining about their lack of business, he will tell them straight that the reason clients don’t call him anymore is because he is not offering them what they really need.

As we all know, organizations are nowadays under an enormous pressure, searching for innovation, competitiveness, agility and flexibility, aiming at not only increasing their market-share but also, in some cases, just assuring their survival. Such pressure has become exponentially exacerbated by the growing adoption of the new digital disruption technologies (Cloud, Big Data / Analytics, Mobility, Social Networks, etc).

Many organizations, which are currently constrained by long-term ITO contracts, yearn for rethinking their sourcing strategy and for transitioning into a new scenario which can assure the achievement of their intended business objectives. It is vital for these organizations to count on a reliable partner to help them to create the most adequate sourcing model.

And who else, more than the current provider, with its deep knowledge about the customer business, probably acquired along decades of relationship and lately as a “traditional” outsourcing provider, could be a better advisor on this scenario?

However, the perception is that the big providers, which dominate the US$ 650B “traditional” IT outsourcing market in 2014, do not perceive the potential demand for new deals which can emerge from such kind of requirement from this huge installed base.

Surprisingly, these big providers seem to lack such mid and long-term view. Their approach seems to be limited to a short-term view, essentially tied to the next quarter profit. Such approach does not allow sacrificing (partially and transitorily) their profitability in exchange for an enormous potential of highly value-added new deals, coming from these same customers, whose needs are currently ignored.

This short-sighted vision prevents an aggressive, frank and transparent attitude towards the ITO customers C-level executives which could deepen the customer-provider relationship turning it into a truly strategic partnership. This would bring obvious benefits to both parties:

– The customer would assure a solid and planned transition roadmap to the adoption of the new digital technologies.

– The provider would assure that the customer would become as captive as ever before, as the partnership will have achieved the highest degree of mutual trust.

Another aspect to be considered concerns to the fact that, although the big “traditional” ITO providers are investing heavily on these new digital technologies (especially those associated to cloud solutions), they make it as if this innovative path should mandatorily exclude the current “traditional” ITO solutions. This false conflict results in a progressive dismantling of the once solid infrastructure in favor of a new infrastructure dedicated only to the new solutions scenarios.

However, such dismantling of the “traditional” ITO structure (comprising both physical infrastructure and current skills) seems to happen in a more accelerated speed than the creation of the new structure (also comprising physical infrastructure but mainly the new required skills). This brings forth a visible capability gap, which makes customers feel insecure and abandoned. Such customer perception motivates them to find alternate providers which can advise them on the most suitable sourcing model.

The mistaken idea that both scenarios (“traditional” ITO and cloud) are mutually exclusive, and not complementary, precludes the possibility of an agile transition.  The proposed consultative approach by the providers would make it viable a planned and solid migration.

Moreover, such misconception will keep on eroding the “traditional” ITO market, whose enormous installed base seems to be abandoned to their fate. As proposed above, an attitude change by the traditional providers would permit:

– That the “traditional” ITO market corrosion, at least partially unavoidable, could happen in a manageable and planned way, aiming at a balanced and optimized coexistence between the “traditional” ITO and the cloud solutions.

– That the strategic partnership between the customers and the providers could be increased, turning their relationship into an “indissoluble marriage”, convenient to both parties

– That the temporarily decreasing revenues could be recovered through a highly valuable consultative approach, which could even include risk & reward mechanisms to be negotiated between the parties

Do you agree with the concepts here discussed? Enrich them with your comments.



Alfredo Saad has been acting on IT area since 1970, taught more than 100 lectures in Brazil and abroad (USA, France, Portugal, Chile, Argentina & Uruguay). He has been acting on IT Strategic Outsourcing Services area since 1997. He negotiated and managed, as Varig's IT Technology Manager, the contract signed with IBM (1997-2004). In 2006 he published the book "IT Services Outsourcing" (Brasport Publishing House). He managed (2006-2009), as an IBM Project Executive, the South American section of Michelin's global outsourcing contract. Risk Manager of all IBM Strategic Outsourcing contracts in Brazil (2009-2014). From March 2014 on, he has been acting as an independent consultant, lecturer and writer on IT Outsourcing as the principal of his own company, Saad Consulting.

Alfredo Saad


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