Three success factors for IT outsourcing in an agile world

13 November 2019 Consultancy.eu

IT (out)sourcing has served as an integral element of business transformation over the last two decades, enabling companies to lower IT costs while enjoying greater access to specialist resources and domain-experience. Pieter Coucke, Barty Lambert, Tim Pieters and Tom Martin from BCG Platinion reflect on how companies can optimise their IT outsourcing endeavours in an agile world. 

Globally, the IT outsourcing market has continued to grow, with demand for key services such as Application Managed Services (4% growth in 2019), Infrastructure Management Services (2%), and Business Process Outsourcing (4%) all predicted to rise further in 2020.

In the last few years the rise of public cloud services and agile delivery methodologies has exposed inflexibility and constraints at the heart of many outsourced contracts. These challenges typically fit into three buckets:

  • Silo-ed teams and complex processes delay progress
  • Limited transparency of activity undermines trust between buyer and supplier
  • Inflexible contracts require lengthy approval for change, and often significantly increase cost 

Market size of the IT outsourcing industry

Despite these challenges, there remains significant value in outsourcing when approached correctly. Target three dimensions to ensure that contracts deliver the most value to the business, and that the relationship with suppliers is designed for the long-term.

Break down silos, and introduce new ways of working

Firstly, engage only those suppliers who are driving modern collaboration and delivery methods to break down silos. This should be a core requirement in RFPs, and vendors should be able to demonstrate where they have done it before. This can include operating agile teams trusted with end-to-end accountability, or Product Owners managing transparent backlogs with frequent prioritisation (replacing layers of project and programme management).

Classic process frameworks, such as ITIL, are no longer sufficient to address the dynamics of cloud-native applications and new ways of operating such environments. The unprecedented levels of automation and implementation of CI/CD principles require highly modified processes. Clients and suppliers must explore any required changes or lean approaches, for example with regards to change management, release management or configuration management. 

In parallel, embrace internal culture change, in particular the speed of decision making and introduction of new roles. At the first, decentralise responsibility to give agile teams more responsibility. Ensure that governance processes are run efficiently to limit overhead, but still provide the necessary oversight that comes with large transformation and outsourcing. 

Secondly, look at new roles such as Site Reliability Engineers which have recently emerged (from Google) as a way for enterprise clients to deal with the aspects of operations, reliability and resilience of applications. SRE is a discipline to create highly reliable and scalable cloud-native applications when large organisations do end-to-end DevOps. 

BCG IT outsourcing approach

Re-think technology and tooling landscape

Next, ensure suppliers are bringing the latest tools and technologies in three areas; 

Development infrastructure;
Implement continuous integration and release tool-chains to enable the testing of new features quickly within a couple of hours ( as opposed to months), and provide a rapid feedback loop.

Project management optimisation;
Adopt collaboration tooling like JIRA, Trello, Slack or Microsoft Teams to provide transparent views on task, milestone and backlog status. Ensure all vendors should have access and integrate the change request process to reduce the approval and delay. Track and monitor KPIs and SLAs in dashboards that are available to all. 

Cloud infrastructure;
For all development activities, ensure that suppliers adopt modern cloud-native approaches to exploit the opportunities of cloud automation. 

Seek win-win partner relationships and design simple contract evaluation methods

Finally, explore new contracting approaches. Design contracts to be mutually beneficial in which vendors are rewarded for meeting client outcomes, while ensuring that measurement and monitoring frameworks are focused on what really matters to your business. Incentivise internal staff to explore large- and small-vendors, to seek long-term partnerships, and to consider new contract options such as risk-reward or outcome-based pricing. Contracts should include clear and flexible mechanisms for managing change in requirements and timelines.

Ultimately, IT outsourcing remains a highly-relevant and valuable approach for reducing cost, accessing talent and taking advantage of market-leading skills and capability. Ensure that the dimensions above are incorporated into sourcing activities going forward.

BCG Platinion is the technology advisory and delivery division of Boston Consulting Group, a global management consulting firm.