How to Benefit from IT Outsourcing
The outsourcing of IT operations has emerged as a growing trend amongst public and private sector companies globally. As with the outsourcing of any op...
The outsourcing of IT operations has emerged as a growing trend amongst public and private sector companies globally. As with the outsourcing of any operation, both businesses and clients can benefit from outsourced IT services. However, there are also pitfalls that any company considering this approach should be aware of and try to avoid if possible.
One of the reasons for this increase in IT outsourcing is the financial constraints that have been placed on organizations during the economic downturn. Undoubtedly, large and small businesses all over the world are looking for ways to cut costs. Outsourcing, therefore, can provide a means by which to provide the same level of service — or even improved service levels — while keeping costs down.
WEIGHING THE OPTIONS
Neil Stephenson, CEO of Onyx Group, the specialist business and IT solutions provider, believes that organizations of all structures and sizes are increasingly recognizing the benefits of IT outsourcing and turning to this model to provide their IT needs.
“In-house IT management is complicated, time consuming and requires the finance, resource and capacity that businesses, especially following the recession, simply don’t have — something which is not set to change any time soon,” Stephenson explains.
Removing such a function from within a company can free up time and budget, which can then be channelled into the core areas of the business. It is vital though that before this decision is taken, all the risks and alternatives are weighed up.
Iain Monaghan, partner and outsourcing expert of law firm Pinsent Masons, highlighted the importance of planning in the outsourcing of any operation in his report, ‘Developing Outsourcing Strategies’ (September 2009). Monaghan outlined the factors that should be addressed prior to taking the decision to outsource.
Among those is assessing the risks and considering the alternatives. The two, of course, are linked as, in weighing up the alternatives to outsourcing, you are also likely to be weighing up the risks involved.
“Some organizations looking to outsource give their existing in-house departments the opportunity to put forward a competing bid, while others conclude that the benefits available from outsourcing could be obtained more economically by changes in internal processes; for example, increased standardization,” says Monaghan. He adds that an organization needs to understand fully the internal function that is to be outsourced before going ahead, citing IT as an example.
“Several studies of projects in the public and private sectors have shown the danger of trying to implement an ambitious new IT system when the users who are to operate that system are not organized in the way that was assumed by its designers,” he explains.
A GOLDEN AGE
Despite the potential pitfalls, IT outsourcing is undeniably on the up.
Stephenson explains that it was Seymour Pierce analyst Caroline de La Soujeole who said just this year that we are seeing an anticipated ‘golden age of outsourcing’. That prediction is based on figures that suggest approximately £80 billion of public sector services are currently outsourced. However, by 2015, this is likely to exceed £140 billion.
“What we will see is a large increase in outsourcing by government bodies as they can no longer afford to manage IT in-house,” he adds.
Britain’s coalition government has been quick to jump on the bandwagon, announcing proposed IT spending cuts. This leaves the government with little choice but to outsource those IT functions.
Stephenson recognizes that there are consequences for IT workers. “The £95 million axe that will be taken to IT spending will have left many government IT departments wondering what the future holds.”
He believes that what is becoming more apparent is that IT departments will need to streamline their structure, and increase efficiency while tightening the purse strings.
Remembering the client in all this is vital, as customers stand to be one of the main beneficiaries of IT outsourcing. Consequently, clients are also a measure of how successful the outsourced service is. In his article, ‘How’s your outsourcing? Ask your customers’, part of a series based on “A Basic User’s Guide to Outsourcing”, Monaghan explains that measuring the success of an outsourcing should be based on business value and customer satisfaction. In turn, the customer expects two things: “the quality of services must improve while the charges for those services must fall”, says Monaghan.
With outsourcing an ever more popular solution to IT management, the scope for the industry is far reaching. Stephenson believes that this presents a huge opportunity to SME IT suppliers as both private and public sector IT contracts become readily available.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”