Outsourcing Trends – The Evolution of IT Outsourcing

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The IT outsourcing industry is changing rapidly today, and I think it’s going to continue to change rapidly for the next five years. For us to understand carefully, what’s going on in the industry at large it helps for us to have a deeper understanding of the history of the outsourcing industry.

It’s an issue that was born in the 80’s and over the course in the nineties expanded a footprint to serve primarily tier-1 customers and primarily for call center, back-office, data entry, and helpdesk-style workloads. Workloads that were very labor-intensive and for any given task is moderately critical workload. Over the course of the 90’s, these same companies and new entrants like IBM Cognizant, Infosys, and TCS that are focused on the IT industry joined the industry in concentrated again on workloads that were very labor intensive and moderately critical.

For example, research and development of new features or lifecycle management of production applications and by lifecycle management I mean the development and R&D piece of the life cycle management; patching, tax code, compliance updates, and so on.

Over the course of the 2000 to 2005 timeframe, this footprint increased to include ongoing operational support of live production systems, and that’s when all this maturation has occurred. What it means is that the large-scale outsourcers are focused on serving primarily tier-1 customers and mainly for workloads. Since 2005 however, the industry has experienced a very rapid transition in the operations world as a result of Moore’s law data center consolidation, server consolidation, virtualization and of course the adoption of cloud.

We’ve seen the average system become incredibly much more critical, while simultaneously the overall labor insensitivity of the infrastructure management workload has plummeted. As a result, the large-scale major outsourcing companies are built wrong.

  1. They tend to be built with larger teams of relatively average people, and as a result, the cost savings are there, but the quality of service is eroded. There’s a new crop of outsourcing companies that have entered the market.
  2. They are focused on creating breakthrough outcomes for the systems, as opposed to cutting costs. They are focused on breakthrough security characteristics, availability characteristics, and of course better human reliability.
  3. Those companies focus on attracting elite talent and are organizing for response times in the handful of minutes and so these companies are taking over the market regarding value systems, systems that are extremely closely tied to revenue.

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