At the Heart of Next-Generation Infrastructure Rethinking Traditional Infrastructure Outsourcing Adapt, Innovate, and Transform Abstract Competing in the connected era means sluggishness will no longer be tolerated. Traditional infrastructure outsourcing is on the decline with increasing levels of dissatisfaction among companies due to its complex structure, rigid service-level agreements (SLAs), and lack of ownership among service providers. Those seeking more value and agility will look beyond long-term contracts with traditional infrastructure management vendors to such infrastructure service providers that can adapt to dynamic needs, transform IT operations, and enable infrastructure at the speed of business. www.niit-tech.com
Traditional Outsourcing would not Cut it Anymore 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 s employees work for a pre-determined number of hours per week or month to provide these technology services to the client. However, this model works at the bottom of the value pyramid the focus is on delivery based on a list of pre-defined contractual requirements, not on ideas and initiatives that can result in tangible 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 long-term agreements, generally referred to as black box contracts and had full control over vendors providing delivery. However, dissatisfaction set in with loss of control, lack of flexibility, poor client-vendor alignment, and every piece of work being called a change request. To make things worse, vendors blamed each other when anything went amiss, leading to a lack of accountability for IT infrastructure. Outsourcers are tired of status quo. They want to partner with next-generation service providers that can deliver 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, indicating that the shift to next-generation infrastructure is occurring faster than earlier anticipated. The Forces of Change Outsourcing is considered to be an effective way to reduce cost and improve business agility. According to Gartner, the size of the IT outsourcing market will reach $288 billion in 2013, a 2.8 percent increase from 2012. Gartner also predicts a 5.9 percent compound annual growth rate (CAGR) in the global outsourcing market from 2013 through 2018. In general, traditional outsourcing models are under unprecedented pressure due to three factors markets, technology, and new business models. The Volatility of Markets The financial slowdown, uncertain and unstable markets, and changing laws/regulations resulted in lower business value being derived from traditional outsourcing models. Wary of multi-year contracts amid economic uncertainty, companies now face unpredictable demand cycles, increased cost pressure, and uncertain revenue streams all of which have led to a renewed focus on cost rationalization.
The Evolution of Outsourcing Companies are working with their service providers to reduce prices and identify potential savings along the value chain. Common solutions here are to get in sync with the dynamic environment, and de-bundle services and assets to address market uncertainties. The Disruption in Technology The technology landscape has evolved with the emergence of new, disruptive technologies such as big data, mobility, analytics and cloud. These technologies have changed the way companies do business, connect with customers, and deliver products and services. According to Gartner, traditional IT service offerings still represent a significant market share. However, steady demand from customers for new technologies has resulted in failure of the traditional IT outsourcing approach. Companies now feel encouraged to invest in the new 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 these models have changed their focus from service-level agreements (SLAs) to achieve key metrics and deliver business value, innovation, and superior customer experience. The changing nature of outsourcing contracts has helped companies manage uncertainty, further reducing operational costs and risks. The shift from traditional outsourcing also helps trigger transformational change, which enables companies to create new capabilities and comprehensively manage critical business processes. Another key trend is how end-consumer behavior is influencing enterprise deals as well. Consumers use 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 consumers can easily adapt to any new technology by just exchanging their old mobile phones with the new ones, without changing usage plans. Why should the enterprise world be any different? Pay-per-use or pay-for-outcome is a proposition that every company will look for in their outsourcing contracts. New-Age Clients Call for Next-Generation Service Providers In an era characterized by connected technologies, clients expect shorter business cycles, 24x7 support,
and business-linked SLAs. They are also looking to evolve their business models with social media, mobility, big data, cloud, and consumerization of IT. With such an agenda, inflexible vendors and multi-term contracts will make way for service providers willing to respond to new opportunities. These providers will help clients adapt, innovate, and transform the way they manage IT assets by: Educating and guiding them on how to meet customer needs Supporting them in optimizing operations and business processes Achieving financial improvements with new commercial models and cloud adoption Helping them adopt new technologies and respond to business needs faster Driving metrics-based performance and ensuring high availability of IT infrastructure A Case in Point: Mobility Transforms a Manufacturer s Logistics Operations A global manufacturing company with production sites in around 70 countries has products and services that include manufacture and distribution of cement, and production, processing and distribution of aggregates, ready-mix concrete and asphalt. Business Challenge The manufacturer wanted to increase overall productivity with an enterprise mobility solution that enabled their logistics team to deliver material en-route to the customer, hand over a commercial invoice printed en-route wirelessly on a small Bluetooth printer, and collect payment on the spot from the customer. The manufacturer was looking for a technology partner who could provide a turnkey solution implemented in real-time through seamless integration with the enterprise SAP system. Our Solution The manufacturer partnered with NIIT Technologies to develop a mobile solution minvoice. The mobile solution enabled logistics teams to exercise a variety of functionalities using their GPRS-enabled mobile handset. They do not need laptops, desktop computers, specific application software, or internet connectivity to connect to the enterprise SAP system. Instead, they 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, the 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 a retail invoice. Delivering More Value The benefits realized by the manufacturer were: More Savings: 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. More Delight: Faster delivery of goods to customers with accurate billing, resulting in higher customer satisfaction.
The NIIT Technologies Thought Board: Rethinking Traditional Infrastructure Outsourcing What are the Key Drivers of Outsourcing? According to a Gartner report, improving agility, scalability, and flexibility are gaining importance as outsourcing priorities. Reduce Business Risk Improve Agility Improve Scalability Improve Flexibility Resource Accessibility Reduced Cost 0% 20% 40% 60% 80% 100% Why are Companies Seeing Infrastructure Outsourcing in a New Light? Market Volatility Increasing cost pressures are forcing a relook at long-term contracts Technology Disruption There is a shift from legacy technology and server rooms to cloud storage and anytime, anywhere compute power Outsourcing Evolution The rigidity of SLA-based agreements is giving way to flexible engagement models What are the Characteristics of Next-Generation Infrastructure Service Providers? Adapt Create an infrastructure operations model that is built on the agility to respond to business needs faster Innovate Ensure the IT infrastructure is geared to deliver organizational adoption of cloud, big data, and mobility Transform Enable a shift to pay-per-use commercial models and metrics-driven performance of IT infrastructure
Responsive Infrastructure Operations Shape an Agile Business Traditional infrastructure delivery models are not enough to compete effectively in today s hyper-competitive markets. Companies need to choose alternative delivery models that can address their priorities and easily adapt to new processes. They should look for flexible and responsive services aligned to transformation goals. Preferences about service providers and their 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, companies should look for responsiveness and commitment as well as platform, operational, technology and multi-vendor flexibility. From a technology point of view, service providers must assist companies in decision-making and maximize the potential of existing investments with new ideas from infrastructure labs and centers of competence, along with tools and new-age platforms that can add a new layer of insight and effort automation to unlock agility.
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