Bruce Guptill Research Alerts Library
What is Happening?
Session after session at ISG Sourcing Industry Conference (SIC) in Dallas confirmed that the re-thinking/re-imagining of traditional outsourcing business is underway as providers step up to new market realities. From the opening keynotes through the breakout sessions to hallway conversations, there was acknowledgement that the playing field has changed, the goals have been moved, and there are new players in the game.
More importantly, we found an acceptance among event participants that business IT is moving closer and closer to the business buyer. As a result, we find that more (if not most) providers are (a) more open to, and (b) more embracing of, the move toward new services, relationships, and business models, increasingly centered around a “digital” economy. That said, significant obstacles remain. As the COO of a large Western-heritage sourcing firm explained in a hallway conversation, “Seeing the challenge does not resolve the challenge. We need to focus on it and make it ours.”
Most notably, the discussions at this year’s SIC focused less on concepts and more on practicalities. The head of Americas advisor relations for a leading India-heritage provider summed it up as follows: “We understand what is happening. The world is shifting. Now what should we be doing?”
Why is it Happening?
It should be obvious to even the most casual observers that the fundamental nature of outsourcing, and therefore of the IT services provision business, is changing. Key points regarding this shift, all of which were explored in depth during the SIC event, included the following:
- Digital transformation. By far the hottest topic in Dallas was the ongoing and accelerating interest in Digital Business. Key questions from providers included how to tell what’s real, how this impacts their business today, and how it affects their abilities to do business in the near term and over the long haul. Net: the shift of business IT thinking on enterprise side must translate to different IT business thinking on the provider side. This is a constant theme in ISG Insights research and analysis.
- The business is the buyer. Regardless of IT’s role in the enterprise, business units (including regional groups, and functional groups such as HR and Marketing) are the new IT buying force. Their expectations regarding services and providers are at least as likely to be based on business enablement and improvement as they are on cost.
- Quality is more important and harder to define. The shift to business-first buying patterns means that “quality of service” is still important, but it is also being redefined. Performance is expected, while user experience (including user satisfaction) become differentiators. Todd Lavieri, president/ISG Americas, Australia and New Zealand, confirmed this emphatically, saying: “Today’s buyer is changing. They want quality every day, business insights every quarter, and innovation every year.”
- Clients are less afraid of change. Years of IT consumerization combined with Cloud/SaaS/IaaS disruption in enterprise IT and business have helped enterprises become accepting of IT and business change to a much greater extent. The current shift toward a more-digital, constant-change, multiple-path business reality cements this. Change is the expected constant, and new and different types of IT and providers are an expected part of the standard enterprise mix.
Market Impact
At the end of the day, the IT business itself is changing. The move toward Digital Business summarizes and epitomizes this in its mission and ability to link it to all aspects of enterprise business and related IT. Enterprise clients want and need new insights and approaches. And we increasingly find that service providers are very willing to do what is needed in order to shift their own businesses accordingly. All whom we interviewed toward the close of the event agreed whole-heartedly with ISG Partner Harvey Gluckman’s market summary, which he closed by saying, “Don’t let solution complexity or an inflexible operating model stand in the way of digital transformation.”
The challenge for any enterprise IT vendor or service provider is that legacy business models exist for a reason: They are what got us here. We do not suggest that they be abandoned or radically changed. That being said, those legacy models won’t get us where we need to go. Providers need to adapt to being able to adopt more business models that co-exist. A single approach will not enable sustainable business.
This is because the greatest number of long-term opportunities will be rooted in partner-leveraged, consultative approaches that include increasing amounts of integration of IT and business operations in a widening array of circumstances. These opportunities will be built on varying combinations of legacy and next-generation technologies, services, and business approaches for enterprise clients and providers alike. The core nature of business IT, and therefore of the vendors and providers supplying it, becomes hybridized, and it will be years before most core aspects of this hybridization become standardized. So IT vendor and provider business models must be able to simultaneously address the existing spectrum of traditional, legacy enterprise IT realities along with emergent and often untested Digital Business realities, all of which are (and will be) changing at various speeds at varying times.
The bottom line: Enterprise business IT vendors and providers need to develop and then optimize multi-path, multi-pace business models. This is a huge effort for most. The same holds true for enterprise business and IT leaders creating and pursuing Digital Business: expect multiple paths creating multiple opportunities that require varying approaches and solutions. Our upcoming Digital Business Summit events in New York City/Greenwich, Chicago, and Berlin will provide a broad and deep range of user enterprise experiences and expertise on this; our research subscribers will also benefit as we publish these experiences with our guidance in the coming weeks.