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The Next Generation of Outsourcing Delivery Models& Value Creation Dynamics

By Tripathi Amarish, Vice President, Sogeti

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Tripathi Amarish, Vice President, Sogeti

New technology has brought a rapid increase in customer expectations—leaving firms with the need to deliver high quality products/services quickly, at an optimal price point in order to remain competitive in the marketplace. As a result, the IT outsourcing industry continues to evolve to ensure value creation.

Initially the economics of outsourcing was based on people, processes, and tools that clients had in-house. IT departments were organized in functional silos with a few groups—such as architecture services, quality management, the PMO, etc.—shared across these silos to drive cohesive practices. The clients typically used task-based, project-based, or functional outsourcing models to source these services.

In these models, small staff augmentation players performed task-based services while mid to large providers delivered project-based or large-scale co-sourcing/outsourcing models. In all cases, a typical IT SLA was used to measure the performance of the IT service providers in terms of response time, resolution time, etc.

Over time, organizations have come to realize, however, that these processes and measurements have numerous flaws. It is difficult to link IT KPIs to business KPIs—primarily because IT KPIs measure each IT system as a discrete unit with the hope that if each system KPI is green, the business is getting what they need. However, many times failures were occurring between interfacing systems and processes which led to failure of the overall business process. In other words, the end-to-end flow that ultimately delivers a business outcome was not the focus of the IT department, causing a great deal of dissatisfaction among the business teams—and eventually, the customers.

"The DevOps solution hinges upon creating an integrated team, tearing down the functional silos between business domain experts (product owners), architects, scrum masters, developers, QA testers, and operations."

Today, the dynamics have changed. Business teams are looking for business outcomes supported by IT product delivery models that are aligned to revenue streams. As a result, IT organizations are being challenged to develop consumption-based models where the business views IT as a utility that they are able to scale flexibly and pay accordingly.

IT departments and service providers are aggressively looking to create these consumption-based models using cloud, analytics, mobile, and digital platforms.But these new platforms come with their own challenges:

Many IT departments have a workforce that is not trained or familiar with the new tools and techniques.  The burden of maintaining the existing systems and schedules while trying to learn new methods is time consuming and slow. There is an absence of a cohesive and unified methodology—such as ITIL, CMMI, etc.—across operations, development, and QA.

So what is the solution? Many service providers, including Sogeti, are looking at DevOps and cloud hosted (public or private) solutions for IT products because they align well with these kinds of consumption-based needs.

The DevOps solution hinges upon creating an integrated team, tearing down the functional silos between business domain experts (product owners), architects, scrum masters, developers, QA testers, and operations. Integrated Agile Scrum teams have operations experts review the user stories and overall design from the initial sprint onward—ensuring that support is not an afterthought, and instead, is well integrated into the entire fabric of the product. In addition, smart dashboards, instrumentation, and logging features are proactively built into the products. The cross disciplinary teams adopt best practices in Agile development, test automation, ITIL processes, and infrastructure automation techniques.

The focus of the entire team is to ensure high availability of systems, frequent releases, and high quality and performance (very low production failures/defects) to ensure an overall positive customer experience. The integrated metrics associated with these methods measure the business output, such as order processing accuracy, rather than IT KPIs. And the culture of the integrated team is periodically reinforced by cross disciplinary knowledge sharing sessions:

Product owners share the business value that the product is generating. Agile development and test teams share optimized techniques of automated builds, configuration management, unit testing, functional test automation, and performance test automation. Monitoring teams share the deployment automation, failure reports, and optimized dashboard techniques.

The overall compensation structure of the team is streamlined to align with business KPIs.

In summary, the next generation of outsourcing delivery models should be re-examined to better deliver business outcomes. This means outsourcing firms and IT departments should focus on:

Training their teams in new skills such as DevOps and cloud. Enabling cross functional teams. Aligning IT performance to business metrics. Leveraging consumption-based models by embracing new technologies (e.g. cloud, mobile, etc).

The outsourcing industry is in a state of transformation—and it’s time to ask yourself, is your organization a part of it?

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