01 Sep 2011
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Outsourcing becomes strealined

The post-recession global economy has been mostly positive in the Asia/Pacific region. Most countries in the region weathered the global recession well and are bouncing back more quickly than the U.S. and Europe.According to the latest figures from Gartner, released in late June this year, worldwide spending for IT outsourcing (ITO) during 2011 is forecast to reach US$313.21 billion. The 2010 ITO market was worth US$293.1 billion, and by 2015 the worldwide ITO market is forecast to reach US$367.0 billion.The New Zealand IT services market declined 4% to NZ$2.6 billion in 2009 but staged a mild recovery in 2010 to a growth rate of 1.4%. According to Gartner, the growth is expected to be 2.4% in 2011, with a similar moderate but steady growth continuing through the following three years.Businesses often outsource IT management primarily for cost savings, though goals can change over the life of the contractual relationship. The provider typically has the responsibility and risk for delivering the contracted IT services to specified service level agreements.Gartner analysts Freddie Ng and TJ Singh have had a look at the New Zealand market for IT services. In a recent report they say the country’s relatively mature outsourcing user community includes government agencies and financial institutions that have long been involved in outsourcing."Many IT outsourcing deals are now in their third generation; mistakes have been made and lessons learned. There is therefore more realism about what IT outsourcing can and can't do and greater likelihood for success, which creates a good foundation for further market growth,” they report.As the main inhibitor of the growth in the New Zealand IT services market, they see the global economy."Due to the highly integrated nature of the global economy, this will at least have some impact on New Zealand's economic growth this year. Against this backdrop, some businesses may hold back on business expansion plans."Despite some challenges in the business environment, there continues to be impetus to outsource, with deals driven by users' continuing need to replace legacy IT infrastructures. Businesses are also engaging in projects to improve business productivity and align IT with business goals. However, IT services vendors must position the right IT solutions to meet specific business objectives for users,” the Gartner report states.Demands for flexibilityThe New Zealand IT services market is dominated by large global service providers, such as HP, IBM, Unisys and Fujitsu. Among the larger local providers we find Datacom.Scott Green, director of IT management, Datacom, says there has certainly been a change in the nature of the demands for outsourcing. He sees three clear outsourcing trends:

  • There is an increasing desire among customers for single providers to supply them with a broad range of solutions from multiple partners.
  • We hear good discussions about who is responsible. What is the responsibility of the outsourcer – the client? There is an awareness of past agreements not being clear on where responsibilities are placed.
  • Customers have a growing expectation of agreements having a strong outcome requirement. They have come to expect a holistic look at IT business processes.
Green says he experiences a greater need for supplier agility in regards to the individual needs of the customer."Customers ask us for greater flexibility and favour dial-up / dial-down solutions. I am certain these trends will continue. It is something all service providers will have to adjust to,” Green says.Asset-lite ownershipAs IT asset ownership shift from within the enterprise to outside the enterprise as a result of outsourcing, it represents a structural change in the IT market where IT is massively scalable, standardised and delivered as a service.This trend has been studied thoroughly by Gartner. Analysts Linda R. Cohen and Bob Igou addressed the matter in their report Steering Your Business Through the IT Services and Outsourcing Revolution. They say the development signals the next generation of outsourcing, which they called "asset-lite computing”."In asset-lite computing, organisations do not necessarily need to own and construct all the technical components (such as servers, PCs, networks, storage, applications) to gain IT functionality. Instead, they access IT functionality from a third party, in a similar way to how we purchase utilities such as gas and electricity. In this new utility service model, organisations will not own/build IT. They will pay for IT functionality or its use.”This contrasts the approach that IT departments have taken in the past. Traditional approaches have involved internally developed and operated technology assets, typically customised to the needs of that particular organisation.The analysts say the main reasons organisations are shifting to external IT assets include cost and resource efficiency, speed to access, as well as demand for scale to meet peak demands and flexibility to scale down."In this coming evolution, organisations will also have the option to control technology assets that have left the enterprise; they will be able to buy specific IT functionality (computing, storage, applications) as a service or fully functional processes (payment services, sales, expense reporting, accounting, CRM) as a service.”Contact centre attitudesThe trend towards more outsourcing seems to be broken by the contact centre industry. New Zealand has seen several examples of companies choosing to drop their outsourcing contracts in favour of bringing their call centres back in-house.The Avaya Contact Centre Consumer Index 2011, which surveyed 300 customer experiences in New Zealand at the beginning of this year, along with a further 5000 surveys in 10 other countries, points to a disinclination among New Zealand consumers to accept overseas contact centres.When asked what constitute an ideal customer service experience, the third most popular factor was "Agent based in New Zealand”. While 56% of the surveyed customers said they were happy to interact with an agent working from home, only 15% were happy to interact with an agent based in a different country. Similarly, only 15% were happy to interact with an agent who does not work directly for the company.Dr. Catriona Wallace, managing director for the Australian company Callcentres.net, had led the research for the annual report over the past 10 years, says this has been a constant attitude for our customer base."The attitude among New Zealand customers to talking with a contact centre representative based overseas has been fairly negative for years – and it does not look likely to improve much. This is a factor worth considering for New Zealand-based businesses,” Wallace says.Consolidating proceduresIn March this year Vodafone New Zealand was forced to temporarily close their contact centre in Egypt due to the unrest in the country. It was then decided to permanently move the contact centre function back to Auckland, merging it with the existing contact centre.Robert Tihanyi, general manager for strategy and operations at Vodafone, says it was part of an overall strategy to drop the outsourcing model for their contact centre."We are always reviewing our approach to customer service. Some of our customers didn’t like talking to contact centre staff overseas, but the feedback wasn’t extreme either way. We actually had mostly positive customer feedback for our service from Egypt,” Tihanyi says."Our reasoning was more about providing a consistent service, and we had decided to no longer outsource this function outside of our company.”The benefits for Vodafone have been clear. Tihanyi says that the customer satisfaction has been steadily increasing since they started the process of consolidating their contact centre procedures in November last year."We have streamlined our work procedures and decreased the workload for our staff in the process. First call resolutions have also been vastly increased. It was definitely the right choice for us.”The decision to take all contact centre roles back to New Zealand have created close to 150 new jobs in Vodafone’s New Zealand contact centre.Redefining strategiesOrganisational financial models are set to change from investment in IT as a capital expenditure to managing IT as an operating expenditure, where organisations will pay for services based on usage or volume. As a result, budgets for external IT spending and decision making could become more essential and subject to even greater scrutiny.Gartner’s Cohen and Igou say this could mean the role of internal IT departments could evolve to integrate IT architecture in order to assimilate externally provided IT.For example, they state, internal IT departments will be less focused on writing and managing code, but more focused on managing external cloud services. They suggest the whole enterprise may even redefine the role and location of IT, with IT becoming more distributed, if the balance of decision making tips heavily toward the lines of business rather than the IT organisation."Customisation as the first line of consideration will disappear, but the notion of business processes that meet specific needs will not. Buyers/users of technology will accept – and even demand – enhanced IT functionality delivered more quickly in an easy-to-use, standardised fashion. Defining core/noncore business processes will also become a key part of strategic decisions for organisations.”

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