The Death of IT Outsourcing

In a few weeks, the British government will announce their spending plans for the next three years. Terrifying cuts are expected and the major IT suppliers have already been called into Downing Street and asked to help the country repay the deficit. De-scope services and reduce your rates on whatever is left.

Because of this, I’ve been calling around and speaking to a number of suppliers and government representatives, to get a handle on what’s going to happen when the spending plans are announced. But, as a part of that process, I found an interesting theme emerging… IT outsourcing is dead.

That’s right. Not today, but in the very near future. One of the key findings I had from my calls in the past week or so is that nobody expects the government to be buying IT from suppliers in future, they will only buy end-to-end business processes and if those processes need IT to be delivered then the supplier will have to figure out the technology.

But, this doesn’t just apply to the government; it’s a trend that is developing across all industry sectors. But what does it mean for the ‘standard’ systems integrator or software development firm? Naturally this favours the suppliers who can do both business process outsourcing as well as IT, and that’s not all of them.

It does mean that the old cliché about change being the only constant is truer than ever. I saw the British Airways CIO Paul Coby speaking recently in London. He talked a lot about technology, and he raved about his new iPad. But all the time he was speaking there was no reference to servers or kit, he focused on getting people through check-in faster, cross-selling car rentals to passengers, or helping passengers find a better deal. Everything was about how the technology can deliver a solution to his customers.

And that’s the problem for pure IT development shops. The end user in the airline, or retailer, or bank, is less focused than ever on the technology itself, but also more familiar with what is possible. The end user customers are talking to their suppliers about solutions to specific business problems and focusing less on how the solution is delivered.

So the IT development firms need to either build up their business expertise and offer a complete package, the ability to offer business reengineering as well as the IT to support that, or they need to partner up with BPO or consulting firms – offering an IT layer to support those creating the solutions.

But this could mean that IT services will get more commoditised than ever. If the real value is in creating the solutions and the IT firms are just expected to be offering the foundation on which a gleaming skyscraper can be constructed, then their perceived value diminishes.

The silver lining for IT suppliers everywhere is that IT is now so entrenched in the delivery of every kind of service. We no longer have so many of the ‘business versus IT’ debates because IT has become an integral part of the business, whether you are a bank, retailer, or government department.

But complacency on the part of the IT suppliers and a continued insistence on low-cost offshore delivery being an attractive selling proposition will mean that many of the names we are familiar with today will not be around in just a couple of years.