Why Managed IT Services “IT Outsourcing” is Making a Comeback

Business transformation is critical for success
but relies on creative application of technology

Back in 2010, CIO Magazine published an article titled The End of IT Outsourcing As We Know It. James Michael Martinos, President & CEO of DirectPointe 7, Inc. remembers those days, “For those of us who worked in this industry back then, the article was both concerning and troubling”. Most of the Managed Service Provider’s (MSP) from those days have either adapted to the market conditions, a.k.a. moved to providing cloud services, been acquired, or gone out of business. So “The End of IT Outsourcing as We Know It” article made the following shocking predictions:

  1. Within five years, the traditional IT outsourcing industry will be extinct
  2. Most Indian providers will be sidelined or subsumed
  3. The fate of U.S. players will hang in the balance
  4. A massive reconfiguring of the outsourcing industry will be due to the rise of cloud computing
  5. If Managed IT Services “IT Outsourcing” is to survive, it needs to adapt to delivering and providing a cloud services model

During the 1980s and 1990s IT Outsourcing emerged as an approach for companies to reduce their computing costs by shifting significant parts of their infrastructure and personnel costs to firms that ran everything for them more cost effectively. The concept was that technology could be treated as a commodity.

In 2011, Marc Andreessen predicted in his essay titled “Software is Eating the World” that technology wasn’t dead and that companies who utilize it properly will provide them a competitive weapon against their competition if leveraged and deployed properly.

Today we see and hear business executives talking about digital transformation. They realize and now understand that their success relies on their ability to leverage, to creatively apply and extend IT in ways that sets them apart from their competition. They understand that if they leverage IT properly, that they can do more with it than just saving money and reduce their IT budget. If properly configured and deployed, it can actually increase revenues. With the use of business intelligence, Artificial Intelligence (AI) and business analytics, it can be used as a competitive advantage over its competition.

What wasn’t understood back in 2010 was that as cloud computing and services emerged, it did not eliminate the need for Managed IT Outsourcing model.

We’ve discovered that while cloud computing and services have a place, it cannot address all of the technology challenges that companies face. So, outsourcing has made a strong comeback, but in a new form. What new form you ask? Well, it’s driven by a new model by helping business grow, improving customer experience, and providing competitive disruptions in ways not previously seen or understood.

This new style of IT Outsourcing paradigm is strategic and transformative. Executive leadership teams utilize business drivers to discover which activities should be outsourced. For example, cloud migration, can be a complex process that nearly every company considers undertaking. Many executives discovered that the “lift-and-shift” practices of early adopters didn’t leverage the full value potential of cloud services. Therefore, their migration strategy encompassed evaluating core competencies to determine which applications would be best managed internally and which can be shifted or deployed to cloud infrastructure, also known as licensed as a service.

This cloud migration project initiative by many large enterprises to mid-market size companies created the need for best practice cloud migration services. Many small to mid-size MSP jumped on the wagon to off-set their revenue losses by filling a much-needed service. Those companies that decided to utilize the “lift-and-shift” by strategically outsourcing parts of their processes, realized that they could tap into the experience of their partners that had facilitated hundreds of migrations for other customers. Those engagements may have only lasted a few months or may have persisted indefinitely; but that decision was is driven by the growing consensus that organizations should do what they do best “focus on their core business” and outsource the rest.

And now there’s a rapid shift to remote work, currently keeping IT teams busy, which has cast a light on outsourcing as a key piece of any response to an external event. As organizations continue to adjust their infrastructure and software to a connect work force, they’re reconsidering every role and function. They ask, should they put all their time and resources into linking remote workers so those workers can perform repetitive tasks that could be outsourced? Therefore, it creates an environment where it may be time to reevaluate keeping it inhouse.

Stepping back and sorting through this rapid renovation will involve several vendors, partners, consultants, and managed service providers, all needed to both navigate the current changeover and set the stage for future success. In this new way of performing business operations, the objective of such projects isn’t to save money so much as it is a business transformation.  The real object is developing a new and improved way a company manages its assets and workforce that enables higher levels of collaboration between its people while they are not physically together in the same office location.

A byproduct of transformative projects like these requires a new methodology to contract management. Businesses will rely more seriously than ever on a small group of strategic suppliers that will be required to help significantly reduce expenses and risk but, even more significant, to considerably boost the top line through more effective innovation.

Virtually every CIO of today companies recognize that this is not just about Cloud Services anymore; these CIOs know that they must fundamentally transform the way they run their IT function if they are to fulfill the objectives that every company is a technology company.

Because of all of this, the terms of new outsourcing contracts will also change. Historically, contracts were written to minimize risk and disruption rather than to promote and foster innovation. This will create new business agreements that will be defined more by business outcomes like revenue growth or Net Promoter Score performance than risk mitigation. As James Michael Martinos, President & CEO of DirectPointe 7, Inc. said recently “contract Services Level Agreements (SLA) written for efficiency do not bring into alignment with a contract SLA that needs to drive growth.”

In the end, whether these new business relationships are called IT Outsourcing, IT Partnering, IT Sourcing, IT Managed Services, or something different doesn’t matter. The practice of Outsourcing in 2021 is back in a new and improved dynamic way. And it’s no longer perceived as just a way to cut costs.

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