Outsourcing Myths

In the world of business, IT services is still a relatively young industry. Many people don’t yet understand their purpose or application. This has led to misunderstandings about IT technology services. CIO.com has gathered IT outsourcing experts who work every day with IT buyers and vendors to help clear up the most common myths that surround IT outsourcing services. Debunking these misconceptions will help business leaders in building their own successful technical support.


Myth: Outsourcing has become easier

As technology has become more and more integrated into the workplace, many things have become easier. However, IT outsourcing remains a complex choice. Marc Tanowitz, managing director at business transformation and outsourcing consultancy, Pace Harmon, states that, “The reality is that outsourcing isn’t standardized and every deal is unique to each client’s business, technical, functional, and financial requirements. And that just addresses the deal structure.”


Once the actual services begin, operations can become even more complex. You may have found someone who was talented at engaging your attention, but not when it comes to actually managing the operation. The lines of who is responsible for what can become blurred; especially when it comes to fully managed IT services. The structure of each partnership is always unique. The tools of outsourcing might be getting easier, but the service itself is only getting more diverse.


Myth: IT Outsourcing is a dead industry

In the short time that IT outsourcing companies have shot up and crowded the market, many people believe this killed the industry from the inside out. What was once a highly efficient way of cutting costs is no longer the valuable deal it started out as. IT outsourcing, as we once knew it, may have died. All that means is that the next generation of outsourcing businesses could provide groundbreaking deals for ever greater savings.


Steve Hall, President of EMEA for outsourcing consultant, Information Services Group (ISG), says, “We have entered the next generation of outsourcing where labor arbitrage and offshoring are being replaced by extreme automation and public cloud adoption.” As outsourcing becomes even more autonomous with cloud computing and remote monitoring, we are seeing innovators find new ways to increase service levels. Technology is changing the industry once again. IT outsourcing isn’t dead; it’s actually reborn.


Myth: The old ways are still the best ways

There is no one-size-fits-all deal when it comes to IT services. One deal might have been well structured to be cost-effective, but it won’t drive innovation. Companies are now seeing the value in building plans that encourage growth, instead of just reducing costs. Consumption-based pricing is taking the place of fixed-price plans. Businesses have learned they might be better off paying for what they use. Instead of just sticking to an old program that may be out of date in today’s world.


Jimit Arora, a partner in Everest Group’s IT services research practice, relates that “The fundamental mindset needed to succeed is very different, and a contract written for efficiency does not align with a contract that needs to drive growth.” Mindful consumers are learning the limits of the old ways. They have seen that they will need to change with the climate around them. Clients who want to stick with the old ways are clashing with strategies that are no longer effective.


Myth: My IT services will provide innovation for me

“The typical outsourcing deal is built to reduce disruption….both the buyer and service provider account teams are incentivized to protect the status quo,” says Bob Cecil, principal with KPMG’s Shared Services & Outsourcing Advisory. There is some room for innovation from service providers, but it will require a unique effort from both parties. Clients will have to find ways to structure contracts that engage creativity and encourage new ways of doing things.


Myth: DevOps and Agile are impossible when outsourcing

The ever-changing landscape of technology requires everyone to adapt. IT providers have to learn how to adopt new practices regularly and the clients hiring their services will have to do the same. The world is always changing, and we must change with it or be left behind. Steve Hall explains, “Create a strategic program with your key providers, bring them into your strategy, and develop your digital future together. Companies cannot do it all alone; strategic providers are critical to making the leap to the agile enterprise.”


Myth: Outcome-based pricing is for everyone

It can be tough to depend on an outcome-based contract when dealing with IT providers. It is often unclear what led to a particular success or innovation. Arora states, “It is a rare client that can link outsourcing value into business outcomes beyond cost savings. Creating programs that align to true business outcomes are difficult when an IT service provider has control over only part of the input.”


Outcome-based pricing is the sort of thing that makes a lot of sense on paper. However, when put into practice it becomes a different story. Business does not live in a two-dimensional world where two points always make a line.


Myth: A risk-reward partnership increases provider accountability

Marc Tanowitz says, “‘Skin in the game’ is an approach by outsourcing providers to convey an interest in a partnership, with both sides sharing risk and reward.” The harsh truth is that most IT companies are not built for taking a risk. In fact, most of them are structured in the opposite direction on purpose. They are usually trying to sell stability and safety with their services. It is a tricky thing to ask for risk-taking strategies from the same place that secures your disaster recovery plans.


Myth: Companies that outsource their IT are losing their best employees

Running a business always comes with the risk of losing employees. There are an endless variety of reasons that an employee might leave. Many fear that IT providers will take over their employees and poach them for themselves. This practice is becoming far less common than it once was. Most service providers prefer to hire their personnel and train them the way they want.


Grabbing someone else’s staff and repurposing them has proven to be less efficient in the long run. Steve Hall says, “A meaningful and empowered organizational change and communications program is the best mitigation for the loss of key people…The best advice is to communicate to employees early and often the benefits of outsourcing.”


Myth: The future of outsourcing savings is in automation

“While automation creates tremendous value, nine times out of ten, automation is being applied to an inefficient process which results in a faster and cheaper inefficient process,” Arora says. automation is not a cure-all. It turns out that is never going to be an end all be all way to advance without consequences.


Automation certainly has value, but it cannot adapt or innovate the way people can. Automation has its uses and, when properly applied, it can make a big difference. The struggle is understanding the ways to apply it.


Myth: My provider will cover the costs of new delivery

There was a time when this was true, but those days, for the most part, have come and gone. Bob Cecil states that “Service providers will charge for upfront transition costs directly; service provider transition costs are sometimes lower than a comparable captive build due to embedded competencies.” It is no longer cost-effective for IT companies to spread out their costs over the lifetime of a contract


Myth: IT outsourcers are outsourcing responsibility

Many companies have fallen into the idea of passing off the weight of responsibility to an IT provider and considering it dealt with. In truth, IT services are a user support business. They are there to support your efforts, not replace them. It takes engagement from both sides to be successful.


Ollie O’Donoghue, research director with outsourcing research firm and consultancy, HfS Research, says, “There are a plethora of outsourcing [horror] stories that involve a business handing over control of their IT to a provider much to their lament.” Hiring an outsourcer is not the end of your work, it is the beginning of a new partnership.


For more information on this topic, check out CIO.com.

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