Tranforming the future of outsourcing

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Atos, one of the leading outsourcing companies, announces a new approach to transform the traditional outsourcing approach.


How do I decrease costs, yet increase innovation? The specialist knowledge we have built up as the Worldwide Partner of the IOC mirrors the intensive, industry-specific knowledge that we will bring to every outsourcing relationship.
What Atos has been doing for the Olympic and Paralympic Games, we can do for your organization, bringing the same winning spirit. This knowledge, coupled with Atos’ vision of the firm of the future, can give you an unsurpassed advantage as you focus on your core competitive activities

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Tranforming the future of outsourcing

  1. 1. TWhite paper transforming the future of outsourcingYour business technologists. Powering progress
  2. 2. IntroductionThe increased competitive nature of the IT Outsourcing has been widely acknowledged as a source of cost reduction as well as business Fig. 1. Top Priorities in Outsourcing2: Source Gartner [16] This raises new challenges for IT service providers where there is a requirement to agility. Outsourcing is, and will remain, one of deliver value beyond just cost savings in theoutsourcing market in the current economic the main development lines for Atos; Atos is Reduce cost, reduce assets or improve cash flow (economic, financial conditions) commodity services they provide. Increasingly, recognized as one of the top three IT to build sustainable added value, industry-climate combined with the emergence of outsourcing services providers in Western Gain access to resources and capability specific business knowledge will be required to Europe. Although broadly used, outsourcing is understand and anticipate clients’ current andcloud services will sooner or later present a not a panacea. A 2009 survey of chief financial officers of businesses that outsource their IT Improve flexibility future directions. This knowledge will be used to customize existing services or create new ones Improve scalabilityreal threat to traditional outsourcing models. services by outsourcing consultancy Cognizant revealed that “78 percent of CFOs believed that with a direct impact on the customers’ core businesses. These general trends also impact Improve agility/reduce processing cycles (speed) the value for money they received from IT Atos visions and expectations. Atos’ 2009 andThis paper proposes two parallel and complementary opportunities for the evolution of outsourcing was ‘unclear’, while only 38 percent Reduce business risk 2010 half-year reports [40][41] acknowledgeoutsourcing services. The first strategy focuses on evolving transformational outsourcing were confident of the ability of their the following facts for IT outsourcing:strategies whereby Atos products and services focus directly on contributing value to its organization’s CIO to communicate the benefits 0 20 40 60 80 100 Cost reduction and skill shortages remain customers’ core business processes. The second proposes that Atos advances its current of their particular outsourcing engagement to major drivers for outsourcing. the business”1. 2009 2010 Percentage of Respondentscloud offerings by developing sector-specific clouds capitalizing on the existing knowledge Outsourcing tends to grow when the the company has gained from the many years it has been collaborating closely with economy is weak; however, outsourcingcustomers in specific industrial sectors. In general, traditional outsourcing models are increasingly coming under pressure due to the growth stalls in following factors: Change in pricing models: times of uncertainty. This raises expectationsOver the last few decades, outsourcing - the process whereby companies or individuals contract out for IT outsourcing and BPO in Europe.a function - previously performed in-house to an external provider has become a common practice While traditional outsourcing contracts are primarily based on fixed-pricing and used-time-and- Economic downfall: material models, the current trend is a push for more commercial flexibility, leaning towards usage- However, decision cycles are likely to be onboth in people’s personal lives and the business environment. Personal outsourced services range hold for buyers and they will be looking forfrom supplying electricity and water to more sophisticated services that improve work-life balance, The economic crisis hasresulted in greater based pricing models or at least hybrid pricing where both a subscription fee and pay-as-you-use charges are incurred. faster ROI and increased flexibility.such as online shopping. Equally in business environments, outsourcing is used as a means of scrutiny of the value delivered by outsourcing.optimizing companies’ resources to allow them to focus on core business functions while relying On average, the number of deals has reduced Re-negotiation of existing contracts to cut on third parties for non-strategic and commoditized services. and they have more focus on cost savings. Cloud emergence: costs and increase flexibility may provide This situation has lead to a very uncertain and While the adoption of cloud delivery models may take longer than anticipated, there is no denying opportunities for consolidating scope and unstable market. that the emergence of cloud services was a paradigm shift that shook the foundations of the IT increasing the length of contracts. industry, and that its continued uptake and development is increasingly shaping the sector. For Protecting the existing customer base will be In 2009, customers asked their IT services several decades, customers and providers have relied on stable delivery approaches, customized critical in 2010. providers to reduce their prices between architectures and solutions and traditional commercial models, with outsourcing and offshoring at A significant growth of migration to virtual fivepercent and 20 percent [22] as a direct the heart of their offerings. environments is expected in order to offer resultof the economic downturn and the need The significance of the cloud model lies not just in changing demands from customers, but in new flexibility and reduce costs. to identify potential savings along the entire market entrants. The hype surrounding the cloud has facilitated the flow of investment capital to Offshore IT outsourcing will increase. value chain. This puts more pressure on IT new entrants (although admittedly so far predomi nantly in the SaaS area) and has encouraged service providers to reduce their own internal Most bids will present environmental existing companies to invest in this market (Amazon, Google, Microsoft, for example). costs in order to remain competitive and exigency development. According to Gartner, these traditional IT service offerings still represent a significant market share, maintain margins. Common solutions here Growth of interest in sourcing management the top 10 service providers account for 27 percent of the datacenter and utility outsourcing market. are offshoring, industrialization of services and and governance. But, while demand is somewhat steadying, predictions for cloud-based offerings look promising. For automation. The market demands service providers have example, global Software as a Service (SaaS) revenues within the enterprise application software market are forecast to surpass $8.5 billion in 2010, up 14.1 percent from 2009. The expectation is that industry knowledge, flexibility and bring In parallel, IT service providers are experiencing innovation. total SaaS revenue will jump from just over 10 percent of the combined markets in 2009 to more lower demand because of budget declines, than 16 percent for 2014 [22]. I n a difficult economical environment, request market uncertainties and delays in contract signings caused by the economic crisis. All for services to transform and operate a major Need for value-added services: part of an information system are expected to together, this generates a hyper-competitive environment where providers are competing While IT service providers are being squeezed by both the current economic downturn and the continue growing. on the basis of cost and the degree of financial threat of cloud services, customers are also forced to rationalize their value chains, simplify their I ndustry domain expertise will be capital basis and service quality risks they are willing to take, business processes and enhance efficiency in the face of increasing competition in their particular for selecting the right outsourcing partner. leading to a zero sum game. markets. They continue to look for strategic partners that support them in optimizing their Some analysts believe the outsourcing market operations and business processes in both the back and front office, where the significance and will soon fragment into players focused on value of this external provision far exceeds value delivered by traditional outsourcing. domain expertise. innovative solution.3 They expect financial improvements (reduced costs and higher profit margins), innovation (competitive advantage by doing things differently from the competition), efficiency gains and improved agility to help them transform and grow their businesses. Figure 1 shows the results of a survey carried out by Gartner in 2010 highlighting the key drivers for customers to outsource [16]. It reflects that, whilst cost reduction remains the principal objective, increasingly customers are looking for access to resources and capabilities alongside improved flexibility and scalability. 1 http://www.information-age.com/channels/it-services/features/1261003/outsource-evolution.thtml2 Transforming the future of outsourcing Transforming the future of outsourcing 3
  3. 3. Impact on businessThis section presents IT services in new Business services currently count as one of the largest sectors in the European economy The OECD [17] recognizes the emergence of this new sector as the main driver of the growth – articipative community platforms, such P asWikipedia, of which few generate Future of internet: economic sectors and have experienced a remarkable growth of broadband subscribers from 68 million in significant revenues and most content internet of services conceptthe three major both in terms of employment and added 2003 to the 251 million in 2008. The growing is voluntary. Services are a key sector in developed value. In the EU, they provide the 8.5 percent number of users has stimulated the creation of The Internet is now a critical infrastructure fortrends that have the economies. Industries delivering intellectual content, support, utility, expertise and of total employment and 15.3 percent of added new content. Besides, mobile broadband – nternet publishing and broadcasting I platforms, such as YouTube, do not the whole of society in developed countries with more than 1 billion users worldwide. Today, value. They also contribute to improving the is also beginning to boost content creation themselves create or own the contentpotential to influence information have significantly grown over the last three decades, becoming the largest part competitive performance of organizations in almost all sectors of the economy in developed and demand. being published or broadcasted. more than the academic network was originally designed for, the Internet is used as a businessthe outsourcing of most industrialized economies [9]. According to The Organization for Economic Cooperation countries. Business Services’ application of ICT is encouraged by many factors such as: An increasing share of the content industry’s revenues is produced by products delivered This trend has been enabled and driven by the platform and has become part of daily life. It is expected that with the development of interaction of technology, global businesseslandscape in and Development (OECD), the service sector accounts for over 70 percent of total Applicability: The intangible nature of many business services makes them suitable for over the Internet, but with market differences across sectors. Advertising is the biggest online and social change. Its effects go beyond products, reshaping other economic sectors wireless technologies, the number of users will grow to 4 billion in a few years. As the numberthe future. employment and added value in the European Union [10]. digital delivery. market, with revenues of over $30 billion in 2007 and annual growth of 30 percent. One such as telecommunications, financial services, newspapers, books resellers and publishers, and, of users, providers, services and connected devices grows, the current Internet is going Demand: To meet new customer demands sixth of total computer, videogame and music to face problems, including but not limited to and expectations. in the future, it has the potential to affect many Business services entail a broad variety of revenues correspond to this sector. In particular, others. Above everything else, it is changing scalability, security and address space limitation. services that are provided to organizations Quality: To improve the quality and depth of the online-games market was estimated at $ 11 the way that people communicate and interact. It is expected that the infrastructure of the rather than to individuals. They cover a broad customer relations. billion in 2008, representing some 25 percent of The trend, known as Hyper-Digitalization by Internet will continually evolve to support spectrum of services that are mainly traded in E xpansion: To enhance market reach and the worldwide games market. The development some business analysts, is going to create new services, trends and businesses. Low business-to-business transactions. Business- expand market share. of user content is rapidly increasing, although growth in demand for many IT services, such entry barriers for provisioning, brokering and services sectors consist of two broad groups; still not completely viable economically [19]: as infrastructure, communications, security, consumption of services are crucial for large Efficiency: To increase operating efficiency the operational services that supply relatively privacy, distribution of content, storage and and small enterprises alike, acting as service and gain economies of scale and scope. Social-networking platforms: online standardized services and the knowledge- management. The sources of this demand are providers and trying to access a worldwide intensive services that generally produce client- Cost reduction: To improve and expand low- advertising is seen as the main future source market of potential service users. A broadened of revenue for social-networking platforms anticipated to be twofold: specific services with high knowledge content. cost production and delivery options. concept of a global and open Service Delivery The wider group of knowledge-producer such as Facebook or Twitter. Nevertheless, Platform is required for the Future of Internet it is still unclear whether revenues will be On the one hand, existing business services services includes business services tackling ICT facilitates the introduction of new business and Internet of Services vision, going beyond sufficient to finance the increasing number of providers adjusting to the new panorama by sectors like transport, logistics, construction, models, development of new applications, the client-server model for service delivery to participants on these platforms and whether automating, digitalizing and moving online. wholesale trade, banking, insurance and improvement and reformulation of business support rich mechanisms of global service users will be receptive to advertising on these The growth potential will lead traditional telecommunications. These intermediary processes, enhancement of customer services supply, where third parties have the capability platforms. Although user numbers went businesses to consider new ideas in IT services apply to a broad spectrum of and increased efficiency throughout the whole to aggregate services, act as intermediaries up sharply last year, the social-networking and services. application domains, ranging from software value chain. for the service delivery and provide innovative development to translation services and from industry‘s revenues in America, its biggest O n the other hand, newcomers to the market channels for consuming services. To realize this equipment provisioning to legal consultancy. But, beyond this, over the last two decades, a advertising market, represented only $ 1.2 will emerge providing innovative services vision, an open platform for marketable, able- new ‘sector’ of the economy has developed billion in 2009, according to market-research over the Internet which will represent new to-be-composed, value-added services on the that neither provides traditional services nor firm eMarketer. However, online audience opportunities for IT service providers. Internet is required. Such a platform will need traditional goods, rather pure digital assets. measurement firm Comscore found that to build upon and extend Web 2.0 concepts to These assets consist in content of all kinds; more than 770 million people worldwide allow for large-scale, community-driven service entertainment, applications, education, advice visited a social-networking site in July 2009, innovation and engineering, global repositories and services for customers that are consumed which is an increase of 18 percent from the for value added services and semantic support mainly by individuals, but also affect traditional previous year. The global average time spent to enhance and enable automatic composition business services delivery models. on social networks was 22.4 hours per user in of value-added services. This will enhance August 2009. This represents an enormous reusability of services and allow reasoning potential that has yet to be fully exploited in to derive further knowledge. Legal, security, two areas: logistics business and technical aspects must be simultaneously addressed for an integral approach to the Internet of Services. This is a long-term vision, but it is already starting to happen. Apple’s Apps Store Model is the perfect example of it. The combination of a good device, a well-designed, integrated and easy-to-use marketplace, together with an effective payment system based on micro-transactions, and a broad selection of interesting content, delivers a very effective distribution channel for services provided by IT service providers, as well as individuals and SMEs. AppStore is a new model for the delivery of digital services and a clear example of how new ecosystems and service models are emerging.4 Transforming the future of outsourcing Transforming the future of outsourcing 5
  4. 4. Fig. 2. Service The following have been identified as potential benefits of cloud computing: Customers started with fully-customized,Generic Value internally-owned and operated services, Reduction of capital investment: Given its outsourcing nature, cloud converts IT into an Network for Aggregator operational expense, paying per use. Also, in the case of infrastructure provisioning, the risk of followed by the external provision of IT-servicesCloud Computing. through outsourcing activities and are finallySource [38] (Broker) overprovisioning or under-provisioning in the datacenter is reduced from a customer perspective. embracing the emergence of cloud-based Scalability on demand: The elastic nature of cloud computing avoids forecasting on compute Service services whereby they buy specific horizontal € € capacity or demand; it can be swiftly and on-demand adapted to business needs, with no need for IT functionality (computing, storage and over or under-provisioning. Service € Service applications) as a commodity-like service or Lower operating costs: Cloud providers achieve economies of scale in their shared infrastructure fully functional standardized services (payment management due to greater resource sharing, greater levels of architectural standardization and services, sales, CRM, etc.). Service operation, as well as a better consolidation. These benefits are passed along to the customers of these services. These include significantly reduced prices in comparison with traditional offerings. Customer Platform Service The fact that the on-demand nature of cloud offerings results in a linearly-priced business model Other visions, such as that provided by The Economist in its special report on Corporate € (Catalogue / Market) Provider must also be taken into account as use increases cost scales directly, but without increases in IT[3] go further, suggesting that the emergence management complexity or additional overhead. of cloud computing could change businesses Metered usage and billing: Different to many outsourcing models based on a fee or a flat and the economy. If IT services really allow € rate, cloud is a transparent pay-per-use pricing model. It is not a recurring bill; it is based on real companies to become more modular and Resources Resources consumption of the service, allowing fine granular IT cost assessment. flexible, this should foster further specialization. It could become even easier to outsource € business processes, or at least those parts Forrester, in its report ‘Is Cloud Computing ready for the Enterprise?’[4] identified the following € typologies of users for cloud: of the business that do not constitute a Consulting Integrated competitive advantage, distinguishing between Start-ups: Given cloud’scheap infrastructure and the low investment required: web-based € data the core processes and the context. This would businesses, SaaS, collaboration services, widget providers, mobile services, social networking, etc. processes/ also mean that companies will rely more on applications Entertainment industry, mainly gaming and entertainment providers: Due to their need for Integrator Infrastructure highlyscalable and temporary systems. services provided by others, increasingly forming ‘process’ networks, a term for loosely- Provider Small businesses: For online businesses, online presence, collaboration and enterprise integration. connected groupings of specialized firms. Enterprises: Used as a quick and cheap experimentation facility by RD projects, quick Both trends could result in ‘huge clouds’ that € provide basic services for a particular sector. promotions, widgets, online collaboration, partner integration, social networking and new business ventures. On top of these systems, many specialized and interconnected firms could construct their € Consulting The wider adoption of the cloud model in enterprise environments, despite of all the previously- own services. (Research) Consulting identified benefits, still faces various challenges with no sufficient mature solutions: Security: Data security is the principal concern in the adoption of cloud services. Many users only trust systems they have physical control over; systems with corporate firewalls and/or with known This represents processes and audits. To outsource to any other model is not perceived as a secure model. Regulations: Some regulations require of tracking, logging and auditing of enterprise data that an emergingCloud Services of attention is now on what the service offers rather that in how it is implemented or hosted, Platform as a Service[7] (PaaS) is the set of welldefined APIs that a cloud provider offers for the moment, are not offered by cloud providers. opportunity for Reliability: Nearly all public cloud providers have suffered episodes of service-level failure or changing their focus from buying tools to developers to implement applications in theCloud computing first emerged as Infrastructureas a Service (IaaS), with Amazon’s EC Services enable a functionality, towards the contracting cloud provider’s environment. PaaS also refers unavailability. This severely concerns enterprises that prefer not to outsource services where they lose control. service providers, of a third party to deliver this functionality in to the provisioning of a development and(EC2 and EC3) as its de facto figureheads. Theevolution of the term is moving on to a more a elastic and on-demand way in a pay-per-use model. Of course, it is not new, Grid, SaaS and testing environment via cloud for a group of developers. Service Level Agreement (SLAs) limitations: SLAs provided by current public cloud providers are too limited and not adequate for enterprise environments. such as Atos, thatgeneric approach becoming an alternativedelivery and acquisition model in which Utility models were already doing it, but it is a clearly a different approach to the classical on- I nfrastructure as a Service (IaaS)[6] is the Existing investments: Already-made investments mean that many companies are reluctant to abandon current systems and outsource to cloud providers. together with a deepanything and everything can be offered ‘as a delivery of computer infrastructure (CPU,Service’. Cloud computing is perceived as the premise, license based models. storage, backup and network) as a service. According to Gartner [2], a continuing trend toward IT industrialization has grown in popularity over knowledge of verticallatest attempt or a general purpose IT utility thatis accessible by anyone, from anywhere at anytime as a Service. Cloud computing and its underlying ‘Everything as a service’ terminology refers to elastic In addition to this layered vision, based on the type of products offered, a more-business the past 15 years. IT services delivered via hardware, software and people have become repeatable and usable by a wide range of customers and service providers. This is for several reasons; the sectors, have theCloud computing is the convergence of several Internet provision of X resources or capabilities. Although there are others, the most-known X-as- oriented classification can be provided by analyzing the different flows of services and standardization and commoditization of technologies; virtualization and the rise of service-oriented software architectures; and most importantly the dramatic growth in popularity of the use of the technical meanstrends from the past years and joins a set oftechnologies and concepts that have been a-Service terms are: Software-as a Service[5] (SaaS) is a model of payments in the form of a generic value network for cloud computing (Figure 2). Internet. These things together constitute a new opportunity to shape the relationship between IT services sellers and vendors, moving from license-based, on-premise models, long dominant necessary to make in the IT industry, to ‘elastic’ models represented by cloud computing. Although this is not aemerging over time: Software as a Service(SaaS), Grid computing, Virtualization, Utility software deployment whereby an application is licensed for use as a service provided to completely new phenomenon; utility computing, Software as a Service and Application Service these sector-specific Providers (ASPs) had their turn, this is building the foundation for a move from an Internet seen ascomputing and Hosting. Moreover, it is achange in IT users’ behavior; a user’s centre customers on demand. a ‘communications channel’ to an approach based on ‘the deliberate delivery of services’ over the Internet. Looking once more at outsourcing strategies, the shift to cloud services can be considered clouds a reality. more evolutionary than revolutionary, being part of an externalization tendency that has been taking place over the last decades.6 Transforming the future of outsourcing Transforming the future of outsourcing 7

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