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Reincarnating traditional infrastructure outsourcing


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Ever since Traditional Outsourcing has gone almost extinct, enterprises are focusing on investing more in next-generation service providers that can provide them flexibility and agility to match the ever changing dynamics of business. This paper highlights how and why traditional infrastructure outsourcing market is shrinking dramatically. It also explains how the new age vendors can adapt to new technology to provide benefits to Gen 2.0 clients.

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Reincarnating traditional infrastructure outsourcing

  1. 1. NIIT Technologies White Paper Reincarnating Traditional Infrastructure OutsourcingReincarnating Traditional Infrastructure Outsourcing
  2. 2. Executive Summary 3 What is Traditional Outsourcing? 4 Effects of Market and Economy on Traditional Outsourcing 4 Next Generation Customers and Service Providers 5 - New Breed of Educated Customers and their Expectations 5 - Next Generation Vendors/Service Providers 5 Our Credentials 6 - Case Study: Manufacturing 6 The Road Ahead 6 CONTENTS
  3. 3. MANUFACTURING SALESSALES MARKETING MANUFACTURING MANUFACTURING CONSUMPTION TRAVEL MARKETING MARKETING MARKETING PROFIT DELIVERY FACTORY PROFIT PROCUCTION PRODUCTIONPRODUCTION PRODUCTIONPRODUCTION FACTORY BUSINES DISTRIBUTION Executive Summary Traditional Infrastructure Outsourcing (IO) is on its decline with increasing levels of dissatisfaction among clients due to its complex structure, continuous finger-pointing and rigid Service Level Agreements (SLAs). Many clients, who signed long term contracts with traditional infrastructure management vendors also attribute the dissatisfaction to incompetency of incumbent IT vendors to adapt to dynamic needs; making infrastructure environment lethargic and rigid. These reasons driving the decline of traditional IO models are in turn encouraging clients to shift to and invest more in next generation service providers that can provide them flexibility and agility to match the ever changing dynamics of business. A report from Forrester Research attributes this shift to change in technologies and innovation. Although traditional IT infrastructure vendors are adding automation and real-time data analysis capabilities to their portfolios, clients are still replacing these vendors at the rate of approximately 40 percent, reflecting competition from agile competitors and newer service providers. This paper highlights how and why traditional infrastructure outsourcing market is shrinking dramatically. It also explains how the new age vendors can adapt to new technology to provide benefits to Gen 2.0 clients. What is Traditional Outsourcing? In traditional outsourcing, IT outsourcing vendors provide only a specific service, such as business applications, servers and storage environments, network and security environment, operating systems and tools, or databases. A certain number of vendor employees’ work for a pre-determined number of hours, per week or month to provide these technical services to the client. However, they do not help companies decide what else they can do to achieve business benefits. The main objective of using traditional IT outsourcing model was cost optimization and efficiency to manage and build various heterogeneous components of IT infrastructure. Companies signed syntactic and semantic agreements generally referred as ‘black box’ contracts and had full control on vendors providing delivery. However, reasons like contracting models, loss of control, lack of flexibility, poor customer-vendor alignment, and every piece of work being called a change request. This resulted in vendors pointing fingers at one another when anything went amiss; led to high levels of dissatisfaction among the companies. Effects of Market and Economy on Traditional Outsourcing Outsourcing is considered to be an effective way to reduce cost and improve business agility. According to Gartner, IT outsourcing market is poised to grow more slowly, reaching $288 billion in 2013, a 2.8 percent increase from 2012. Gartner also predicts a 5.4 percent compound annual growth rate (CAGR) in the global outsourcing market through 2017. In general, traditional outsourcing models are under unprecedented pressure due to the following factors: Uncertain markets, economic downfall and changing laws/regulations In the last five years, financial slowdown, uncertain and unstable markets, and changing laws/regulations have resulted in lower business value being delivered by traditional outsourcing models. Many customers are wary of multi-year contracts amid economic uncertainty and are facing a number of challenges, such as unpredictable demand cycles, increased cost pressure, and uncertain revenue streams to focus on cost savings. After the economic downturn in 2008, customers forced their service providers to reduce prices and identify potential savings 3
  4. 4. 4 along the entire value chain. Common solutions here are to get in sync with the dynamic environment, and de-bundle services and assets to address these market and economic uncertainties. Changing technology contributing to sluggish growth The technology landscape also evolved with the emergence of new, disruptive technologies such as social media, mobility, analytics and cloud. The emergence of these technologies shook the foundations of the IT industry and has changed the way we connect with each other, and how companies do business, and deliver products and services. According to Gartner, traditional IT service offerings still represent a significant market share. However, steady demand from customers for these new technologies has resulted in failure of traditional IT outsourcing approach. Companies now feel encouraged to invest in the new models. Change in outsourcing models While traditional outsourcing contracts are primarily based on fixed cost models, the current trend is pay-per-use models that allow companies to scale up and down on demand. Companies using pay-per-use outsourcing models have changed their focus from SLAs to achieve key metrics and deliver business value, innovation and superior customer experience. The changing nature of outsourcing contracts has also helped companies achieve transformational change and manage uncertainty; further reducing operational costs and risks. Companies can now concentrate on creating new capabilities and comprehensively manage critical business processes. The change in customer behavior with special attention on what the service offers is changing the focus from how it is implemented. For example, customers in the US are using pay-per-use models in all walks of life. They pay only for services - data and call plans – based on their usage and need, and not for the mobile phones they use. Using pay-per-use models is beneficial as users can easily adapt to any new technology by just exchanging their old mobile phones with the new ones, without changing usage plans. Next Generation Customers and Service Providers New breed of educated customers and their expectations The 2008 recession was a wakeup call for the new breed of educated Gen 2.0 customers. After the 2008 financial downturn, these customers expected shorter business cycles, 24X7 support, business linked SLAs, evolving business models spawned by social media, mobility, analytics and cloud, and consumerization of IT. They completely rejected inflexible vendors and multi-term contracts in favor of service providers willing to respond to new situations and important changes. Changes in technology and clear customer expectations, thus, drove service providers used to dealing with the intricacies of technology to adapt, innovate, and transform the way they manage IT assets. Next generation vendors/service providers While IT service providers face increasing pressures due to the economic downturn, emergence of new technologies and change in outsourcing models, customers are also forced to simplify their business processes and enhance efficiency in this increasingly competitive market conditions. They continue to look for strategic/solution partners that can: • Educate and guide them on how to meet customer needs • Support them in optimizing operations and business processes. These Gen 2.0+ IT partners can help customers in achieving far more value than the value delivered by traditional outsourcing vendors. Figure 1 highlights the key drivers that encourage customers to outsource their work to Gen2.0+ partners. Reduce Business Risk Improve Agility Improve Scalability Improve Flexibility Resource Accessibility Reduced Cost 0% 20% 40% 60% 80% 100% Figure1: Top Priorities/Key Drivers [Source: Gartner]
  5. 5. Customers can achieve financial improvements and business efficiency, and improve agility by using services of these strategic IT partners. Our Credentials Case Study: Manufacturing Business Scenario The client is a global company employing more than 80,000 people, with production sites in around 70 countries. The clients core businesses include manufacture and distribution of cement, and production, processing and distribution of aggregates (crushed stone, gravel and sand), ready-mix concrete and asphalt. The client wanted to increase overall productivity by enabling their delivery people (truck driver) with an enterprise mobility solution. The mobile solution should enable truck-drivers to deliver material en-route to the customer, handover a commercial invoice printed en-route wirelessly on a small Bluetooth printer and allow truck drivers to collect on-the-spot-payment from the customer. The client was looking for a technology partner that can provide a turnkey solution implemented in real-time, vis-à-vis enterprise SAP system. Value Delivered The client partnered with NIIT Technologies to develop a mobile solution - mINVOICE. The mobile solution enabled truck drivers to exercise a variety of functionalities using their GPRS enabled mobile handset. They do not need laptops, desktop computers or specific application software or internet connectivity to connect to the enterprise SAP system. Instead, drivers can process and print invoice on-the-fly in real-time with the handset at the backend and an application integrated with Enterprise SAP servers in the front-end. The invoice generated can be printed using a small, wireless and portable printer that connects to the mobile device using Bluetooth technology. The new invoice generated is recorded in SAP for the delivered quantity. Simultaneously, Stock Transfer Note is also modified in the SAP system for the quantity delivered. The application also enables on-the-spot collection of payment by providing retail invoice. NIIT Technologies’ solution aligned with latest industry trends provided premier customer experience. The benefits reaped by the client were: • Considerable savings on secondary freight as the material is supplied en-route to the customer • Marked improvement in bottom-line due to reduced freight costs • Faster delivery of goods to customer resulting in higher customer satisfaction. The Road Ahead The IT services market is changing and traditional infrastructure delivery models do not meet the needs of next generation customers. Service providers need to choose alternative delivery models that focus on customer priorities and can easily adapt to new processes. They should also offer flexible and responsive services aligned to business, and understand customers business and pain points. Further, to provide business value and adapt to these alternative delivery models, IT service providers need to understand sourcing needs of customers and support them in their business transformational goals. This will help them enter new markets. Customer’s preferences about service providers and delivery model should be such that it should help them jointly make business decisions along with the service provider. While choosing between available delivery models, customers look for agility, responsiveness, commitment, and platform, operational, technology and multi-vendor flexibility. From a technology point of view, service providers must assist customers in decision making. They must provide help on IT infrastructure - Labs and Centers of Competence (CoCs), tools and platforms. Service providers can also help customers by providing them services that can help them to stay ahead of the competition. 5
  6. 6. D_57_220114 Write to us at NIIT Technologies is a leading IT solutions organization, servicing customers in North America, Europe, Asia and Australia. It offers services in Application Development and Maintenance, Enterprise Solutions including Managed Services and Business Process Outsourcing to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. With employees over 8,000 professionals, NIIT Technologies follows global standards of software development processes. Over the years the Company has forged extremely rewarding relationships with global majors, a testimony to mutual commitment and its ability to retain marquee clients, drawing repeat business from them. NIIT Technologies has been able to scale its interactions with marquee clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into extremely meaningful, multi-year "collaborations. NIIT Technologies follows global standards of development, which include ISO 9001:2000 Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information security management certification. Its data center operations are assessed at the international ISO 20000 IT management standards. About NIIT Technologies NIIT Technologies Limited 2nd Floor, 47 Mark Lane London - EC3R 7QQ, U.K. Ph: +44 20 70020700 Fax: +44 20 70020701 Europe NIIT Technologies Pte. Limited 31 Kaki Bukit Road 3 #05-13 Techlink Singapore 417818 Ph: +65 68488300 Fax: +65 68488322 Singapore India NIIT Technologies Inc., 1050 Crown Pointe Parkway 5th Floor, Atlanta, GA 30338, USA Ph: +1 770 551 9494 Toll Free: +1 888 454 NIIT Fax: +1 770 551 9229 Americas NIIT Technologies Ltd. Corporate Heights (Tapasya) Plot No. 5, EFGH, Sector 126 Noida-Greater Noida Expressway Noida – 201301, U.P., India Ph: + 91 120 7119100 Fax: + 91 120 7119150 A leading IT solutions organization | 21 locations and 16 countries | 8000 professionals | Level 5 of SEI-CMMi, ver1.2 ISO 27001 certified | Level 5 of People CMM Framework