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.

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CIO.com: You've noted that many CIOs have felt "straightjacketed" by the standard offerings of IT service providers at a time when flexibility is key. How can cloud solutions—standard by definition—be the way out?

Sethi: Cloud-based service management has many benefits to offer weary CIOs. Its proactive tools enable them to gain control over vendor relationships, experience a far greater ability to understand and serve the needs of business users, and unleash a powerful new source of information for contributing to the achievement of strategic goals. As leading organizations redirect their energies to focus on getting in shape for leaner operations and increased service quality, cloud-based service management falls well within the scope of initiatives to consider. Early adopters are retooling their capabilities to be more customer-responsive than ever before by streamlining vendor relationships, taking processes in-house, and improving process harmonization and [IT service] transparency.

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CIO.com: Another emerging outsourcing management model is the service integrator model, whereby an IT service provider oversees the end-to-end IT delivery provided by multiple vendors. Is that a viable alternative?

Sethi: While a viable option, it does not solve two problems. CIOs remain at a disadvantage and are not able to regain control in few select areas that they should ideally have in-house. And the one prime vendor does end up costing more at the end; there's a higher total cost of revenue because of the margin-on-margin impact.

CIO.com: You may make the case that independent software vendors (ISVs) are the CIOs best bet for IT service management. But the IT service providers will say they know outsourcing management better than anyone.

Sethi: We have made the case for ISVs because we fundamentally believe that there is a need here to be provider-agnostic. This is how the service management fabric and its inherent capabilities will remain fungible and usable across vendors. We have no doubt that IT service providers have and are pitching their own tools. Furthermore, there will continue to be acquisition activity in this space. But the high ground is with vendor-agnostic ISVs.

CIO.com: With Cloud-based IT operations management, CIOs can tie their vendors to a common service management fabric of policies and processes. But are the traditional IT service providers capable—or willing—to adapt to this?

Sethi: The cloud-based tools require some upfront work in terms of feeding in the information you want to track and setting up processes to maintain its currency. So this does have cost and investment implications, and client organizations have to take the lead. In certain cases, clients may even need to invest in tool licenses for providers to use.

We are seeing a few such implementations and each have required a good upfront effort to baseline current performance, understand process flows and interconnects, and buy licenses. Additionally, they've had to invest in internal resource training. All of this comes at a cost but we believe this is money well spent. There is improved end user experience and an increase in productivity and business performance.

Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section.

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