What is Happening?
Results from the latest IAOP State of the Industry survey, co-presented by ISG at the Outsourcing World Summit (OWS17) in San Antonio, TX last week, indicate that enterprises and providers alike are awash in uncertainty driven by disruption in technology and in business. And both the choice of dealing with, or managing, disruption.
The survey and the Summit centered on themes directly impacted by or have disruption at their core: Outsourcing Market Trends, Enabling the Digital Economy, Influences of New Business Models, The Rise of Robotics, and Impacts of Various Populist Elections. Key highlights include the following:
- The traditional outsourcing market is getting upended by the dramatic increase in IaaS and SaaS contracts, mostly led by the US market – but EMEA and APAC are showing signs of following suit.
- The success of digital innovation and transformation is demanding increased engagement from service providers.
- Enterprise clients are hungry to be “uberize” but are reliant on service providers to bring industry expertise and solutions to change their existing business models.
- Automation brings threats of job losses but also hope of new key roles for employees and providers.
- And finally, the geo-political environment has the greatest chance of disrupting the entire outsourcing eco-system that we’ve seen in the last 20 years. The anticipation of the unknown could be a bigger disruption than the actual policy changes.
Our conclusion: Disruption is needed to meet consumer demand, remain competitive and increase revenues. Avoiding disruption will not create stability and strengthen a firm’s position in the market, but will instead guarantee that they will lose market share and a segment of their customers.
Why is it Happening?
“Dealing with” vs. “managing” disruption is an important distinction. The response to this year’s survey was unique in that there was a record number of incomplete and abandoned surveys, and all were connected to the section on disruption. ISG and IAOP have speculated that this is symptomatic of what we are seeing in the market. Most clients admit that they don’t know what they will do, nor how they will react to many of the disruptions in their industries and in technology. They are being disrupted in multiple ways and are overwhelmed. This aligns with the top four disruptions that were identified by enterprise clients, service providers, and advisors in the survey, as shown in Figure 1.
Figure 1: Top Four Disruptions for Enterprises, Providers, and Advisors Source: 2017 IAOP State of the Industry survey.
Those enterprise clients who responded to the survey confirm that the impact of new government policies, different market demands, and changing consumer behavior is driving disruption. This in turn disrupts enterprise expectations and dependencies on service providers and third-party advisors. The need is no longer for “lift and shift” or “shift left” types of engagement. There are few if any within most enterprise client environments who have experience in dealing with the current level of business and technology disruption. So it isn’t surprising that, according to the survey results, the greatest dependency by enterprise clients on service providers is around both business and technology expertise and associated solutions.
Figure 2: “What are your disruption-related expectations for your service providers?” Source: 2017 IAOP State of the Industry survey.
Additionally, 89% of enterprise clients indicate that their top dependencies for third-party advisors is “Bring the Right Vendors,” and 84% said “Identify the Solutions that Drive Disruption.” This confirms the dilemma facing enterprise clients: how to manage disruption while also creating their own disruptions. Both require key partnerships with service providers and advisors – and ISG is finding that enterprises are impatient for solutions. Todd Lavieri, ISG President Americas, speaking about client expectations said in his keynote speech at OWS17, “They want to move faster, but they are cautious of the impacts to their various business lines. They are looking for service providers and vendors to react to their changing requirements – and to bring insights and innovation every quarter and quality every day.”
Net Impact
These survey results align with the advice that ISG and many others are giving to enterprise clients and providers as they deal with and manage disruption. Three key themes that stood out in the survey results, and reiterated throughout OWS17 presentations and breakout sessions, can be translated to three key actions to manage disruption as follows:
1. Embrace new business models. The survey indicates that 78% of enterprise clients feel that the adoption of new business models will be the key to their success. An audience poll conducted with the 300 attendees of the OWS17 keynote presentation asked “Are providers providing technologies which enable the new business models?” An average of 47% of enterprise clients and advisors indicated that “Providers are behind where we want them to be,” while 21% of the providers in that same audience poll said “We are completely ready” and 59% said “We are preparing and building competencies.” It appears that enterprises seeking to “uberizing” their business or embrace other key business models will rely heavily on themselves for the near term at least.
2. Remain flexible to best practices in digitization efforts. In the survey results, 66% of service providers indicated that the expectations of their clients around various digital initiatives is more complex due to relationships that are more directive vs. collaborative. And in response to another audience poll question, “Which disruption is impacting your business the most,” 40% of enterprise clients, providers, and advisors agreed that it was Technology Driven Disruptions. With most companies relying heavily on providers for technology-centric solutions, a trusted collaboration with key providers is critical.
3. Proactively plan for geo-political business impacts. Clients are banking on advancements in automation that will enable them to reduce dependencies on offshore resources and replace them with automated processes. Both enterprise clients and service providers are exploring new in-sourced and nearshore options as well as deferring their sourcing decisions pending policy changes. In an online poll that was conducted during the keynote presentation, the audience was asked, “Do you believe that the current global political environment will impact your sourcing strategy?” 66% said Yes, 20% said No, and 14% said Not Sure. We believe that “Not Sure“ is typically the best answer. Proactively planning for various contingencies is always a good approach, with speculations left to others.
Enterprise clients need to be willing to “show their hand” if they also hope to learn from others. Where the disruption creates competitive advantages, it’s obvious why some clients are keeping quiet. But most clients are entering a new frontier and a collective and collaborative approach will be the most effective way to get everyone to a solid foundation. At that point natural selection will separate the wheat from the chaff.
Providers need to be more prescriptive in how they’ve seen the consumption of the various disruptive technologies and business models happening in key industries, different regions and around the world. The uncertainty of enterprise clients engenders disruption but awareness of best practices and case studies will greatly reduce elements of the disruption.