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Outsourcing industry – time to innovate

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Innovation in most sectors has its roots in technology. What is curious though is that the outsourcing industry that plays such a big part in transforming other sectors has somehow ignored the need for innovating its own business models.

There is clear evidence of headwinds and industry players need to innovate to stay relevant and play their part in the IT supply chain of the future in a fast changing market place. And the time for them to do so is running out fast.

There are some notable trends that underline the need for change –

The resource based business model is under stress

Cost reduction is never out of fashion and remains the single largest driver for outsourcing. While the technology requirements grow, budgets don’t. The market is pushing for business models that break the tight link between requirement-resource-revenue as it currently stands. As-a-service models, assisted by technologies such as automation and robotics present an opportunity to buyers and suppliers for innovative business models that break away from resource intensive nature of the business.

Traditional sourcing deals are under siege 

While the market for outsourcing remains healthy, there is much turbulence below the surface. Traditional, multi-year multi-million pound contracts are declining with many organisations reluctant to commit too much too far ahead, limiting their flexibility and options. This trend is forcing suppliers to re-think their business models. They will need to invest in innovative platforms and solutions that lock their clients in for longer periods and decrease reliance on pure play services to maximise revenues and ensure longevity of relationships.

Lowering entry barriers 

Organisations increasingly acknowledge that their needs are best met by using the full breadth of expertise that is on offer rather than relying on large suppliers. Many small and young niche players are developing innovative products and solutions and, as a result, are able to penetrate and disrupt the market place. As Procurement gets directed more and more by business stakeholders, these small players are able to demonstrate value and win contracts against their traditional larger rivals.

Increasing plans to rebalance in house and outsourced services

There is growing evidence that as organisations build their IT supply chain of the future, they are considering to rebalance what they build vs what they buy. Digital business models and Agile delivery increasingly requires closer collaboration and some clients find that difficult to achieve with a third party organisation. With technology becoming ever more central to many business activities this trend is likely to grow. As a result, many clients are finding that they can drive their own innovation agenda better and build valuable IP, if they have in-house technology teams that are closely integrated with the business.

These trends clearly indicate that as suppliers help drive technology driven innovation across sectors, they cannot be complacent about their own innovation agenda. It used to be a luxury, but that was yesterday.

Manish Khandelwal is an IT Sourcing and Transformation expert at PA Consulting

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