The Evolution of the IT Outsourcing Industry

IT Outsourcing is a multi-billion dollar industry in the world today. It covers everything from Business Process Outsourcing (BPO), Customer Management Outsourcing (CMO), network repairs and response, software license management, helpdesks and too many more areas for me to list here.

More and more companies are finding value in just plugging into external providers and getting rid of a lot of the headaches associated with running an IT Department, maintaining talent and so on. They are also finding that it is often pretty cost effective.

To date, many areas have been able to be totally outsourced. Call centers for customer management, PC services and network response (such as in this article here) as well as IT helpdesks. However, one of the few areas to stubbornly resist this level of offshoring is that of Enterprise software. The SAP/Oracle/Mincom giants that require some form of onsite prescence, or local at least. Even though the technology does exist to do this remotely!

But how long can things stay this way? This year, in particular, has seen an incredible rise in the popularity of SaaS or software as a service. The Salesforce.com model, among other technologies. How will this affect the future of IT outsourcing? We put this question to a group of experts recently.

The SaaS revolution is throwing up all kinds of unexpected consequences. From data center reductions, to departments taking IT decisions without involving the corporate overseers, through to increasing pressure on the suppliers of old-technology ERP and CRM systems.

Today, there are a range of vendors that are able to provide on-demand software systems, enabling companies to totally outsource the data management, configuration, and work processes involved with even routine tasks. How long would it be until the management of a companies total enterprise systems were able to be done on demand?

Paolo Roberto Bertaglia, Strategic Services Executive at EDS; "This is a fact today. Software development, tests and production can be done by people out of the office and located at different hubs or even at their home. Likewise, engineers can develop big automotive projects remotely by introducing changes in a CAD systems."

"Salesforce.com has its product under the SaaS concept, so does Oracle and SAP. The running environment can be at the customer, at the provider or even at a third part provider differently than the one who is operating the whole environment."

In fact, Oracle manages one data center in Austin that we are aware of, where it manages the entire environment for people in Latin American countries. (Specifically Brazil) This opens up additional avenues of opportunity for consultants. Particularly in the areas of IT integration, business process design and implementation, and a range of additional value added services.

For example, it is possible today for a company to spend a vastly reduced amount of money on licensing by implementing a combination of, say, Salesforce.com for CRM, Workday for HR and resources, and NetSuite for financials. As we have written about before, the path to implementation on these products is quicker and clients can get on with the task of using the programs, rather than a two year wait for the implementation to roll through the company.

But there are even greater advantages in outsourcing the enterprise information, that of leverage. Through appropriate procedures for security of information, an arrangement could be made whereby certain data could be shared for the greater benefit of all.

Take physical asset management. The very nature of machine operation, failure, and the environments that they operate in means thatacurate failure data, of the volume required for high confidence decisions, is hard to come by. (Non-existant in some industries)

By pooling aspects of this data clients could mutually benefit, leading to dramatic increass in NPV of their physical asset base. In many industries, and in many areas, this concept could assist clients of SaaS type services to draw out leading practices and more accurate decision making data.

Are companies ready for this?

"Outsourcing has been maturing over the years and customers are demanding more than the traditional call-center, HR/Payroll or Help Desk contracts. Currently the service and support function (such as the Help Desk) and application development and network operations remain the most popular components to outsource. IT organizations have become smarter as they enter into the third and fourth generations of outsourcing contracts and want to leverage more "value-add" services from the outsourcing providers. Companies want to enhance their revenue by tapping into the outsourcing provider's vertical expertise, process maturity, and industry best practices." says Ramesh Munamarty, the Director of On Demand for Oracle.

"Enterprise Software Management is a key area of outsourcing and there are several players including Oracle, which offers E-business suite On Demand, CRM On Demand. It plays in the traditional Oracle and Partner model but also offers Remote Infrastructure Management via Customer model."

But why stop with SaaS. This year has also been the year of Second Life, where we all started to think about how we could live virtually, as well as make money doing so! A whole new world of possibilities for outsourcing not only IT sevices, but many others also.

Dave Elchoness, Founder & CEO of VRWorkplace bought a whole new perspective to the conversation. "There are a number of suitable virtual worlds and more will be released in 2008. Imagine a virtual workplace in such a world where employees regardless of physical location have a "place" to sit together for work or play or a cup of coffee."

"Further, where any customer in the world could meet "together" with his or her service provider. With a virtual workspace, where we can "see" eachother and spend time together in the same environment, physical geography will become irrelevant. Add in other remote workingtechnologies and virtual working will be the norm. "

"I used to run a global IT outsourcing function and believe strongly that such an approach could have helped enormously as we tried to manage work across thousands of miles. We could have bonded more effectively with colleagues, spent less time traveling, had more fun"

Can you imagine that? A world where consultants do not need to travel! (Sign me up!)

Brian Regan, the President at Semper International agrees. “Once Linden Labs adds the ability to add HTML to prims (Basic building blocks of Second Life) you will be able to access your database through a website while logged into Second Life. Then you will have dbase, email, IM etc at your disposal while still be in a virtual room with your team mates. You can speak to them and hear them, hold meetings, react to things as it happens to them and assist as needed.”

We live in a time of abundant opportunities and rapidly changing corporate environments. There is no telling exactly what these technologies could potentially do to the industry of outsourcing. But it does look as if it will become far easier to telecomute between countries, even to the point of being able to establish close personal relationships with suppliers half a world away!

It may also make it easier to generate new programs, new technologies and a whole range of new value added services that we have not yet begun to contemplate.