Outsourcing and Digital Transformation: Are Providers Keeping Up?


OutsourcingIs outsourcing an accelerator or an obstacle to executing a digital transformation strategy?

According to a new article in CIO magazine: it depends.

On the plus side, author Stephanie Overby cites specific steps enterprises can take to ensure that outsourcing enhances transformation efforts. These include:

Executives should also look beyond the usual (large) suspects when selecting a partner. “Digital is so complex,” writes Overby, “that no single provider has the answer to all the questions — enterprises are more aware of this, and are looking to smaller and cooler providers to bring into their sourcing strategy.”

That said, many businesses are finding that traditional outsourcing arrangements are hindering their transformation efforts. For one thing, rigidly defined and complex agreements stifle innovation and flexibility. And in many cases, providers are reluctant to disrupt and potentially cannibalize existing revenue streams by introducing new technologies and operating models.

For example, a long-time provider of help desk outsourcing services might offer incremental cost savings and enhancements around incident resolution time. While delivering improvements, such measures don’t really alter the status quo.

A truly disruptive transformation partner, meanwhile, will say, “Rather than resolving problems more efficiently, let’s find the root causes of problems and eliminate them. And while we’re at it, let’s apply intelligent tools and transition from people-based service delivery to an increasingly automated, technology- and process-based model.”

The tension between disruptive force of digital innovation on the one hand, and the inertia of legacy outsourcing on the other, is nothing new. But it may be reaching a tipping point. New research by Horses for Sources finds that “barely a third of outsourcing deals are now safe.” The basic reason is that more and more client organizations are becoming disgruntled with their providers. Too many incumbents are dragging their feet on driving true innovation and are instead simply slapping a “digital” tag on existing offerings.

Recognizing this, clients are increasingly willing to walk. In his typically blunt manner, CEO and Chief Analyst Phil Fersht offers this advice to buyers of outsourcing services: “If your long-time service provider is failing to deliver you any of these [digital] benefits to your business, or at least is making some strides to incorporate pricing that is tied to successful service execution and not only people effort, then it’s time to cut bait before you get fired yourself for perpetuating a legacy model that is depriving your firm from finding new thresholds of value your smarter competitors are already enjoying.”