Saturday, July 13, 2013

Opposite trend to Outsourcing - Insourcing but with a twist

We all remember the time when IT resellers came up with the revolutionary idea: 'why should the customer companies put their valuable resources into something that wasn't their core business. If your business was to make food pruducts, why would you hire 10 persons just to operate the IT environment and why would you even own it by yourself. You should stick in what you're good at. And let them take care of the IT who are good in that. You don't need to pay them anymore even if they were idle, but you pay only what you need and what you use.'. Looked from the customers perspective also moving your IT hardware and software to outside your company seemed to be a clever thing - let the others get the headache'

We all know what happened. End users eagarly agreed on this. Too much money went already yearly just to maintain the IT environment for something that seemed to be far from efficient. The bigger the customer company was, the easier it was to show the benefits and savings they'd get. What also happened with many companies was that many times not only the IT environment (software and hardware) was taken over by the outsourcing partner, but also the IT team was moved under the outsourcing company, leaving only IT manager, or in worst case the one left making the decisions about IT for the end user company was CFO. What actually was outsourced was more than customers realized at the time. Only when time passed and the skillful people that were moved from customer to outsourcing partner found new challenges with some other company walking away with the true knowledge about the customer setup, customers came to meet the fact that the knowledge transfer wasn't successfull even though one of the argumentation for outsourcing was that end user wouldn't rely on one person only as there would be backup people who would know the stuff too. Only thing that everyone forgot was that outsourcing company makes profit by doing as little as possible. The more hours the engineer needed to operate for the customer the less profit was left under the bottom line. The same goes with hardware. It wasn't outsourcing company's interest to update the hardware and software unless they were forced to do so. They extended the life cycle of the environment from 2-3 years into 4-5 years or even more. If customer wanted to upgrade anything based on their new business need, that meant upgrading the service contract, which meant more money to cast to the bottomless well.

As a result the outsourcing sercive providers got a customer lock, where customer really didn't have flexibility to take the contract elsewhere. All the hardware and software and the knowledge about their environment wasn't in their hands anymore. The Monthly costs started to grow, the IT environment starded to look like grandpha rather than a fast and vivid yougnster able to move fast with the businessn needs. Reasonable saving turned to be saving to death.

Sometimes some good things happened also, standardazing the environment that had really got out of hands helped in maintaining it better, but the benefit from that didn't come so much to the enduser but merely grew the profit of the service provider. Some more wise customers used open book contract where the savings were treated mutual and the profit that came with it divided between the enduser and service provider. But also in those cases the focus turned into savings, not into the things that actually would make the customer company fast and flexible to respond to their customer needs. But the standardization helped them later, something they didn't realize yet as it wasn't yet time.

Only when outsourcing partners went to virtualization to save even more in harware, cooling, electricity and management, they actually at the same time shot to their own foot, as it also gave tools to end users to quite easily be able to move the environment to another service provider, or even to take the environment back to be maintained by themselves. Now that the hardware was separated from the operating system, it meant that customers were able to move the environment (the operating systems, software and data, everything being now only bits and bytes) to somewhere else a whole lot easier. Their servers were now actually just files that could be moved to other side of the world in hours if not in minutes. As many of the customers were at this time questioning very much of the outsourcing partner's ability to actually maintain the environment and support the customer business the same time, what we saw was some of the customers taking the environment totally back. Not maybe the best decision but understandable. Some customers went to another road, finding more flexible and cheaper service provider who would take some of the tougher and the most time-cosuming tasks and leave the business critical applications which were closest to the customer core business for the customer IT team. Yes, many customers already had hired some of theresouces back, mainly for the core applications and development. So now the customer IT team concentrated only on maintaining and developing the solutions that closely supported and enabled their core business. All the other areas were outsourced to smaller, faster and more flexible partners, who's business wasn't yet so big that it wouldn't let them act fast. To someone who responded fast with the resolution to the problem - not with the automated message saying we'll let you know something in 48h. The difference now was that with the new IT core teams at customer site, they had the knowledge to ask for the right things to be done. They know knew what to measure, what was important. They knew now it was irrelevant to know if the server was up and running if the software on top of it didn't actually work. And it didn't matter if the traffic in the network was flowing if the user couldn't access the right data at the right time. A lot was learned from the past.

At the moment it's easy to see the analogy to how we bought our hardware and software earlier (something I discussed in my earlier blog about unified solutions We're now in the phase where customers buy different services, actually more and more cloud based services, basing their decision by 'best of breed' thinking. When the best of breed solutions ended up with the situation where no-one could manage those individual tools anymore as there were just too many of them, the same is happening now with the services we buy.

The next phase will be that customers will reduce the number of service providers offering these cloud based solutions. They will try to find those who can offer more under the same contract with only one front end. But this time they are not looking for the big players bringing them everything which would get them into the same situation they were before. What they are looking is one shop to buy different solutions based on their needs and where it is easy to start and end services ny Month, even by day or even hour if needed and choose what ever is needed on the fly. We're talking about the same way we buy software as we need, like what Adobe does today, offering consumers and professionals the ability to rent their quite expensive product if purchased off the shell with much more readonable Monthly fee, paying as long ad you need the software and getting always the latest version of the software without any extra fees. Resembling the way we're bringing all kinds of gadgets to our working place wanting to be able to use them the same flexible way we're used to in our homes. The same way the customers want to be able to buy the IT services that they need to support their business. If they want to have couple of extra servers once per year crunching all the numbers for tax authorities, there's no sence buying and paying for the extra capacity if they need it only for 2 days, not for the whole year. So this temporare capacity needed should be able to be bought as easy and fast, without any time consuming service contract negotiations or the amount of labor it normally would need to make it the old way.

The future business opportunity is with those who are able to combine the best of breed solutions from different application and service providers behind one front end, where customers can buy what they need and pay per use. Best of breed is still good compared to one provider who would offer you couple excellent solutions but the rest more mediocre or even useless tools. But best of breed solutions are good only when combined and offered with a new way.This is a whole new business area, advanced brokering is what you might call it. Not only will you need good relations to one of the best application and solution providers, but you would need to build the invoicing and measurement and provisionimg mechanism which would be very simple and easy and automated into both direction, both towards the customers and the vendors who provides the unique services in the background. Also you need to cover your market area with high availability access, meaning multipke service sites offering your services. If one site is down, there must be several others to take care of offering the service without interruptions. This position is very natural for IT distributors who have been in the middle always having relationships to both towards the vendors and the channel. What it needs though is a new way to think about their role and offering as a distri. But not only for distries, this is also opportunity to the new gamers, building their business just on that - brokering the best of breed solutions based on the cloud services and taking a fee from every transaction. 

For customers this means new and efficient and flexible way to renew and grow with the trends of the market. For us in IT business this creates new business which will partly replace the old business. We're living very interesting times where we will see the transfer to something very new. And we're lucky to see it from the front seat and to be part of it.

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