IT Outsourcing: Will CIOs Reclaim Their Power?

Independent cloud-based IT service management tools could enable CIOs to wrestle back control of IT once and for all, argues A.T. Kearney's Arjun Sethi.

IT outsourcing has always been a double-edged sword for CIOs. What starts out as a cure for IT's ills always seems to cause more headaches down the road.

The first IT outsourcing models—single-sourced, vertical deals—promised to bring to bear industry expertise in service delivery and processes. But these all-inclusive relationships often ended up stifling competition, limiting flexibility and even increasing costs.

As the corporate IT environment grew more complex, IT leaders sought help from multiple vendors to meet their needs for technical skills, geographical coverage, and competitive rates. But this "maze of outside vendors" has proven difficult to manage, says Arjun Sethi, vice president and partner in charge of A.T. Kearney's strategic IT practice. CIOs in multi-sourced IT organizations continue to struggle; there's no single view of processes, no automated exchange of information between vendors, no consistent SLA management—all of which lead to escalating management costs.

But that's all about to change, according to Sethi, who says the tipping point will be the adoption of independent cloud-based IT service management tools. These systems will not only streamline vendor relationships and service management, he says, but also enable CIOs to reassert control over IT by taking the process piece back in-house. talked to Sethi about his predictions for the future or corporate IT power and the IT outsourcing model he envisions for the future. IT outsourcing has always been fraught with management challenges for corporate IT. What are the biggest changes you've observed in this area in recent years?

Arjun Sethi: We have observed several key changes in the last five years that have fundamentally changed the structure of the IT outsourcing market:

  • It service quality is now judged more based on achieving the desired business outcomes than the underlying technical performance and availability. The distinction between business outcomes and IT performance has largely disappeared.
  • IT services are delivered in a more integrated manner from different locations around the globe—or virtually.
  • New vendors are challenging traditional outsourcers with solutions that deliver capabilities at a lower price point.
  • The need to manage IT operations seamlessly across a multi-vendor environment has increased. You look at the new tools and changes taking place in end user service management (EUSM)—one of the first areas of IT to go out the door—as a bellwether for the rest of IT services. What are you seeing?

Sethi: Cloud-based EUSM tools provide a unified view into the root causes of incidents for tracking, measuring and improving performance—cradle to grave—from both end user and vendor management perspectives. They have put the CIO and their IT department in the driver's seat by enabling them to view the delivery process from issue initiation to problem resolution, regardless of which or how many vendors perform a given task. Empowered by cloud delivery and process commoditization, enterprises have real potential to take back control of their EUSM choices. We believe other towers of service will follow. You say that now is the time for CIOs to take back control of IT processes and vendor management. But having outsourced a significant portion of IT to date, have they retained the skills necessary to do this?

Sethi: That's perhaps the most important question. It is both a risk and an opportunity. Indeed, with all of the outsourcing over the last many years, organizations have lost some of the key content and contextual knowledge required to run their IT operations. We find that many IT organizations who are heavily outsourced sometimes do not readily have basic—and oftentimes critical—information like asset inventory or a good understanding of root causes driving IT issues. Only when a high-severity issue occurs do organizations deploy detailed root cause analysis. It takes substantial time to then figure out the problem across the entire IT stack—from the application source code to the middleware to the underlying infrastructure. More often than not, that process leads to debate and no one takes accountability because different vendors (or the company itself) own different parts of IT.

On the flip side, this is an opportunity is to take back control, rebuild the necessary skill set, and get in front of this issue, leveraging new service management-enabled opportunities.

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