Cost reduction is once again topping the charts as the key driver for outsourcing. After several years of organisations citing core business transformation as their main reason for outsourcing, the 2016 UK IT Outsourcing Study, conducted by Whitelane Research in collaboration with PA, reveals 60% of respondents cite cost reduction as their primary objective.
Some sectors are feeling the pressure more than others when it comes to cutting costs. The public sector is the most concerned at 75% compared to financial services at 50% – with the latter focused on digitising and innovating to stay competitive.
It’s possible that after some necessary investment, which allowed vital and much delayed technological upgrades to be made, the uncertain economic climate is driving organisations back to ever more stringent cost control. Certainly IT is, and should be, subject to the same forensic cost examination as all other support functions. However, ever tighter squeezing of resources and suppliers’ margins won’t deliver much more in the way of cost reduction without a significant impact on service quality.
So how can CIOs reconcile the challenge to reduce costs with the pressure to transform their IT organisation – making it more responsive and innovative, and ensuring technology is an enabler of competitive advantage? The answer lies in boldly adopting new technologies and capabilities, and changing the way IT organisations operate.
Agility is key
There are significant cost saving opportunities to be made when organisations adopt Agile – Agile projects can be 61% cheaper and three times more likely to succeed than those using ‘traditional’ approaches, according to the British Computer Society.1 But to reap the benefits, you can’t simply smear a veneer of Agile terminology over existing practices. Instead, you need a major change programme covering training, coaching and tracking through the right management information to ensure that the improvements are embedded and sustained. Take our work with a central UK Government department where we are leading the Agile delivery of a £200M IT programme to transform core services. We’ve proven that Agile is suitable for large and complex government IT programmes – and able to deliver much faster than a more traditional IT delivery approach.
The sky's the limit
67% of Whitlelane survey respondents plan to increase their use of cloud technology and numerous organisations, albeit many of them suppliers, claim savings of up to 40% are realistic. We know this is possible in practice – we developed a new cloud-based collaboration platform for the National Institute of Health Research, which provides over 1,000 times the storage of the old system while reducing running costs by around 40%. Cloud adoption can also increase flexibility and scalability, introducing consumption-based pricing models, while eliminating capital costs.
When moving to the cloud, organisations need to have a clear understanding of their applications estate – many applications will need significant work and migration will not be a simple ‘lift and drop’. It is important to clarify which applications can be updated and which should simply be stabilised then replaced or retired. The type of cloud and the enabling technology, such as use of containers, may well vary depending on the business and architectural roadmaps.
The issues, of course, are not only technical; other areas must also be taken into account, such as the legal or regulatory requirements (does it matter where your data resides?) and the implications on their operating model (what happens to staff who support platforms rendered redundant by a move to public cloud)?
The robots are coming
Interest in robotic process automation as a means of improving consistency and efficiency continues to grow, potentially providing cost reductions between 25% and 50%2 when applied correctly. But robotic process automation should not simply be a matter of automating existing processes. It must simplify processes to remove waste, and consider both customers’ needs and how resources can be repurposed to unlock further value. You can read more about our insights on robotics here and how they are affecting different industries here.
So it is possible, through outsourced or in-house provision, for organisations to achieve the nirvana of cost reduction and transformation. We’ve seen this happen just recently – we developed an IT strategy (covering both the internal operating model and external sourcing arrangements) for a large insurance organisation, proving that investment in new capabilities such as agile, digital and data can be successfully balanced with a 7% projected cost reduction, based on conservative models. Agile, cloud and robotics all hold the potential to enable organisations to invest more money back into their business – and focus on innovation and expanding their product or service offering.