by: Ronald Escanlar
Friday, April 29, 2011 | Comments (0)
Category: Outsourcing Research / Trends
Cloud computing, multisourcing, restructuring – these are the key trends that are driving growth in the outsourcing industry, spurning service providers to be more competitive, as concluded by a new research report released by an outsourcing advisory firm.
Sourcing advisory firm TPI has just released TPI Momentum(SM) Market Trends & Insights 2010 Annual Report, which showed that last year, the outsourcing industry was hugely affected by the emergence of cloud computing, the surge of multisourcing contracts among clients, and the high volume of expiring service contracts.
"2010 was not a growth year for many segments of the industry," commented Paul Reynolds, TPI Momentum chief research officer. "For service providers to increase pipelines and improve profitability in 2011, they will need an accurate reading of current client preferences and market trends, an appropriate strategy to respond and disciplined execution in the face of strong competition. This report provides the information they need to understand the size and scope of opportunity in the global outsourcing market."
The TPI Momentum report sourced data from the TPI Index, reports and analyses of TPI advisors spread across the globe. The report said clients would adopt Cloud Computing in the near future, with provisions for the Cloud indicated in outsourcing agreements. Service providers would be adjusting their Cloud-based services in tune with the demands of the market, the report added.
Many companies have the mistaken notion that outsourcing is a solution - a panacea that will be able to shore up their savings, minimize inefficiencies, and maximize profits. If the outsourcing deal does not deliver its “magic”, they blame the whole outsourcing idea, conveniently forgetting that they form half of the outsourcing partnership.
Software entrepreneur Martin Zwilling says outsourcing is “a tool, not the problem or the solution.” He then goes on to draw up criteria for outsourcing - useful not only for software entrepreneurs like himself, but also for anyone who plans to rely on outsourcing for their products and services.
Keep your core services in-house. Restaurants do not give away their secret recipes - you should do the same for your company. Outsource services or processes that you don’t consider as essential.
Secure your intellectual assets. Software piracy is rampant among developing nations. Zwilling says that 90% of computer users in China and Vietnam rely on pirated software. Secure your outsourcing contracts and have your outsourcing service provider sign off non-disclosure agreements.
Match technology with capacity. Zwilling says that outsourcing cannot deal with the “absolute latest in software technologies”, scalability to millions of users, and multi-system failover and recovery. He suggests relying on outsourcing for non-core software testing and maintenance.
Compute costs. Indeed, remote work reduces costs, explains Zwilling, but you also have to factor in indirect expenses such as increased costs in project management, travelling, and communications.
Products are easier to deliver than services. Software as a product is much easier to deliver compared to software as a service (SaaS). Zwilling says within the context of SaaS, software is customized for specific situations, making it more difficult to manage and deliver.
Creativity versus mundane tasks. According to Zwilling, mundane tasks, such as process automation or reservation systems, is easier to outsource compared to creative tasks such as chip design or consumer games. However, he points out that every outsourcing deal must have detailed specifications.
According to Zwilling, the best way to develop an outsourcing partnership is to initially build a strong relationship, carefully managing the project along the way. He warns potential outsourcing clients about staff training, turnover rates, production processes, and project management. Clients are also being chided for vague specifications, lack of an acceptance criteria, and “scope creep”.
Cloud computing entered mainstream business last year, and industry experts are predicting that the technology will mature and become more pervasive this year. From small, family-owned companies to large, multinational corporations, the “cloud” is disrupting traditional models of conducting business.
Small companies have successfully migrated some of their processes, such as email, virtual servers, customer relationship management (CRM) systems, and customer support to cloud service providers. On the other hand, large corporations, by their very nature, have been lagging behind in tapping cloud computing for their operations.
Corporate barriers are challenges that can easily be hurdled through coordination, cooperation, and communication. David England, a managing consultant with outsourcing consultancy firm Alsbridge, Inc., tells the story of sales divisions delving into cloud-based services without consulting their own IT colleagues.
In the long run, England says, cloud initiatives taken without strong collaboration, coordination, and communication among business and IT executives can lead to an inefficient use of scarce company resources. Business processes shifted to the cloud need to be integrated into the company’s IT infrastructure, and if this is not possible, then the shift to the cloud will have been in vain.
England recommends the use of a systemic methodology inspired by a company’s specific business case. Relying on a process-based shift to the cloud enables collaboration, coordination, and communication among business and IT stakeholders and ensures that the preferred cloud service is specifically tailored for their company.
Before deciding to shift services to the cloud, a company should ensure that involved personnel all have a say in creating the cloud computing plan. At the minimum, all stakeholders must have a basic understanding of the advantages and disadvantages of using cloud computing. As much as possible, too, all executives must travel the same learning curve at the same pace, since a delay can cause unneeded frustration among participants.
As with any plan, a company shifting to cloud computing needs a clear vision of itself after being cloud-enabled. Do they plan to run entirely from the cloud? Do they shift legacy applications and services to the cloud? A paradigm shift can be strenuous and stressful for an individual - more so for a corporation involving several individuals. Focusing on building the fundamental blocks of a company’s cloud computing plan facilitates a strong and smooth transition into the cloud.