Monday, December 7, 2009

The Third Leg: Component-oriented Sourcing

It's been a meandering journey, but we've arrived at the final dimension of today's IT Services and Outsourcing marketplace. This is the aspect of the industry for which I sense the greatest level of energy and activity among the CIO community and the service provider universe. I call it component-oriented sourcing.

  • There continues to be a tempo of larger integration-oriented sourcing strategies coming to market by CIOs that are looking for holistic change of their operating models.
  • We also see a moderating pace around wage-oriented sourcing. This was the rage over the past few years, but the runway of improvements is limited by virtue of the form of relationships conceived around the lower-cost delivery models.
  • Things brings us to the current hotbed of sourcing - CIOs looking to leverage discrete solutions to achieve the benefits of consumption-based costing for commodity-like services.

Perhaps the task at hand is email services, or server administration.  Perhaps it's network - ubiquitous, mobile, secure connectivity.  And, what about storage?  Of course, there's also the poster child of cost/quality improvement targets:  desktop support.

Along comes the various tools to enable virtualization - of computing, communications, storage, and even some business applications - and CIOs look to reap the benefits through the IT Services industry.

Just as the promise of wage-based cost improvements gave rise to offshoring (and it's use as an avoidance mechanism for more holistic outsourcing), I sense that component-oriented sourcing is today's way to drive near-term cost improvements without the burden of a "traditional" outsourcing initiative.

What's different?  No transfer of staff when you're buying a standardized/industrialized service and little/no outlay of precious capital.

In my view, it's this third leg of the sourcing stool that has prompted some of the recent M&A activity and which is causing great concern among the wage-oriented providers in the industry.  Generally speaking, they don't have a dog in this fight.

Today's IT Services market is leaning decidedly towards component-oriented sourcing.  It's relatively quick to implement, discrete in scope, leveraging delivery models that have been "built for purpose", and bringing the promise of complete variability.  What's not to like?

Well ... history has proven that what a CIO buys today may not be what s/he needs in 3-4 years' time.  That's why so many of those wage-based contracts are dead-ends as the CIO tries to achieve broad transformation or even tap into component-oriented solutions. The wage-oriented providers can't sing those songs.

The recipe for winning as a provider in the emerging IT Services & Outsourcing market is to bring a transformational spectrum to the CIO - one that can deliver component-oriented benefits with confidence, can leverage lower-cost sources of labor when needed, and can step up to the broad transformation agenda that is surely a matter of time.

CIOs today are looking at the industry and seeing these three very different camps of eager providers.  Very few are positioned as a leader in all three.  

Source on.

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