Strategic CIO // Enterprise Agility
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8/4/2014
09:06 AM
Shane O'Neill
Shane O'Neill
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4 IT Outsourcing Trends To Watch

How cloud is competing head-to-head with outsourcing more, and other developments to keep an eye on.

There's no perfect formula for which IT resources to keep and which to ship off to a third party.

One company may see a help desk service as good for company culture and collaboration and keep it in-house. Another may see it as a commodity service that's ideal for an Indian outsourcer. Figuring out the outsourcing/insourcing ratio that delivers the best results is a high-stakes problem for many a CIO. 

With that in mind, here are four growing trends in cloud, offshoring, and domestic outsourcing for 2014 and beyond as defined by outsourcing consultants who spoke to InformationWeek. 

1. Cloud vs. traditional outsourcing
While migrating your IT infrastructure to a cloud service is not "outsourcing" in the traditional sense, it is a form of outsourcing. But even traditional outsourcing models are using cloud technology underneath, whether the outsourcer is using Amazon or IBM is using its own cloud. 

[Doing most IT work in-house and outside the cloud isn't a winning strategy. Read IT Control Is An Illusion]

Both public and private clouds are getting more traction this year among Fortune 500 companies and could threaten the traditional outsourcing model, says David Rutchik, a partner at IT consulting firm Pace Harmon. 

Rutchik points out that, as a result, outsourcers like CSC and IBM are integrating cloud capabilities into their products. IBM, for example, bought SoftLayer last year for $2 billion. "They're going on the offensive to get new business or on the defensive to keep from being priced out by cloud players," Rutchik says. 

Big companies that once feared using public cloud because of data security concerns are gaining confidence to use it for development and testing, and even for running customer-facing apps, says Rutchik, based on the activity of Pace Harmon's Fortune 500 clients. 

"Major retailers are using public cloud for at least a portion of their service," he says. "It's much faster to provision a server, much less expensive. The security worries haven't been alleviated, but are less paramount."

Expect more companies to compare the prices and benefits of cloud services versus traditional outsourcing models as part of their strategies this year and next, Rutchik says. 

2. Outsourcing pricing models based on results
How do you measure outsourcing? Liz Herbert, principal analyst at Forrester Research, has seen a move to outsourcing contracts that are priced based on business outcomes.

The common ways to measure outsourcing have traditionally been bodies needed and help-desk tickets filed. However, says Herbert, "those 500 help-desk tickets don't have anything to do with what the business is trying to accomplish." A company needs to understand why it's outsourcing certain tasks to begin with or it'll end up paying for hourly billings for too many people and counting help-desk tickets that don't mean anything. 

"If an airline outsources its call center, the purpose of that call center is to solve problems," she says. "But measuring it by call volume doesn't address why the airline chose to outsource. To save money? Yes. But are they improving customer service?"

An example of outcome-based outsourcing: A major retail company Forrester worked with needed its web site and call center to be 100% operational from 

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Shane O'Neill is Managing Editor for InformationWeek. Prior to joining InformationWeek, he served in various roles at CIO.com, most notably as assistant managing editor and senior writer covering Microsoft. He has also been an editor and writer at eWeek and TechTarget. ... View Full Bio
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Brian.Dean
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Brian.Dean,
User Rank: Ninja
8/5/2014 | 3:23:50 AM
Re: Onshoring
If the in-house management of the support function is retained post outsourcing then they should be able to provide a good estimate about the advantages and disadvantages that outsourcing provided. A business needs to specializes, if a business needs to manufacture a pen each time writing needs to take place -- the business will not progress. 

Off shoring creates an added layer of complexity, because global wages are not flat at the moment and it can become difficult to assess for example, if a company is overpaying or underpaying.
Lorna Garey
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Lorna Garey,
User Rank: Author
8/4/2014 | 3:40:50 PM
Re: Onshoring
People talk a lot now about cloud ROI and doing apples-to-apples pricing comparisons. However, many IT shops never even got their arns around that process for conventional outsourcing, preferring to pretend that the hundreds of hours spent by high-priced US engineers writing requirements docs and then error-checking buggy code would have been sunk costs no matter where the work was done. 

Smart companies will learn from past mistakes when considering cloud.
Somedude8
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Somedude8,
User Rank: Ninja
8/4/2014 | 12:41:13 PM
Re: Onshoring
I work freelance/contract, and have seen a signifcant increase in demand for US-based, senior level talent from US-based companies in the last year or so. Enough so that rates are up significantly, and full time gigs are posted on freelance sites regularly.

What I am seeing is just one narrow perspective, one person's personal experience. But discussions with peers indicate that its not just me seeing this.
Ajr@m
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Ajr@m,
User Rank: Apprentice
8/4/2014 | 11:32:57 AM
Outsourcing methods
IT outsourcing definitely offers flexibility, outsourcing today has matured to an extent and can provide far more than what it could 10 years ago technology and market competition have helped in this regard but then again choosing right model and solution is critical to ensure an efficient and successful engagement, I work with McGladrey there's a whitepaper on our website about this very topic that will interest readers of this article Three essential IT outsourcing methods every business should know - http://mcgladrey.com/content/mcgladrey/en_US/what-we-do/services/technology/infrastructure/managed-services-it-vision/three-essential-it-outsourcing-methods-every-business-should-know.html
Ajr@m
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Ajr@m,
User Rank: Apprentice
8/4/2014 | 11:13:13 AM
Re: Onshoring
I think Capital one recently moved their server management inhouse and are managing with a much smaller but efficient team, costs will definitely be higher when compared to even an offshore center.
Laurianne
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Laurianne,
User Rank: Author
8/4/2014 | 10:50:51 AM
Onshoring
"With domestic sourcing, you'll have higher pay rates, but you'll have a smaller, more experienced team doing the job." Important factor. Anyone care to share on your experience here?
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