The Future of IT Services: How to Prepare

We constantly hear hype about how a given market is changing drastically. And given the economy, many companies we talk to tell us that the only thing drastic happening in IT services today is the rate reductions they’re asking from their vendors. But after years of moving forward slowly, IT services is in fact about to change drastically. Here are a few reasons why, and what you can do about it.

Changing Global Demographics

Baby boomers are getting set to exit the workplace at an astounding clip. In the United States alone, 76 million of these folks are hitting retirement age over the next decade. In the U.S. government, 30 to 40 percent of the IT workforce will retire during that timeframe.

Unfortunately for us, only 48 million will join the workforce to replace them. The United States will lose nearly a third of its workforce, which will only increase the importance of sourcing work to other regions of the world.

And other developed countries face the same challenge — economies such as the United Kingdom, Germany, and Japan have populations with a median age between 40-45 years old.

But now consider other countries — how about The Philippines where the median age is just 22.3 year old? Or India, with a workforce of 516.4 million people, where half the population is under the age of 27? Both regions are important to the future of services and sourcing but a clear concern for the foreseeable future will be finding senior talent in these regions. Notice that these are just two of the countries most often mentioned in offshoring and global delivery conversations.

The changing demographics will drive continued need for globalization of the labor pool — despite short term-driven political rhetoric to the contrary. These issues are going to drive changes in how IT gets delivered, and it will drive new investments in productivity technologies and services.

New Delivery Models

The lines between products and services are blurring — Software-as-a-service (SaaS), solution accelerators (pre-built code that systems integrators use to kickstart client projects), and cloud services are all examples. And while these hybrid solutions are often pitched as being less expensive in the near term, buyers also want them for more long-term strategic reasons too — more transparency into the cost structure of their IT delivery and less dependency on dedicated assets are two key long-term benefits.

One utilities firm told Forrester that while they could justify SaaS on cost alone, they were actually implementing it to get services to their business users faster, helping IT develop a better relationship with its constituents.

But SaaS is just one example. Solution accelerators are helping systems integrators deliver work to clients faster and more effectively today. But in the long term they’re also changing the role of the integrator. Since a solution accelerator is a piece of code, it’s turning many services firms into defacto software vendors — changing the way clients need to write their services contracts and the kind of work they expect from their providers.

Cloud services do something else too — they industrialize and compartmentalize traditional IT services, changing what clients are buying from outsourcers and other services firms. Tomorrow’s outsourcing contracts might be nothing more than a bundle of pre-packaged cloud services rather than the custom-built solutions they are today.

Different end user expectations

Demographics and new technologies are bringing some macro changes, but there’s another critical, end-user-led, factor in the IT services market today: technology populism. Tech-savvy end users who have access to many technologies via their mobile devices and personal computers are bringing their expectations for consumer-oriented technology into the workplace. No longer willing to accept whatever technology standards IT dictates, these users are demanding the ability to use the devices and applications of their own choosing.

For example, one major hospitality chain decided that it would pilot a “Bring Your Own PC” program — because the cost of shipping PCs to remote workers and the futility of trying to retrieve those machines from ex-employees were hindering the company’s long-term productivity goals.

The movement to allow employees to use their own PCs instead of the standard-issue corporate machine will change hardware support contracts, outsourcing deals, and security services in ways we are just beginning to understand.

What You Can Do About These Changes

At its upcoming Services & Sourcing Forum, Forrester will delve into the services, sourcing, and vendor strategies that will enable your company to not only survive recession but emerge from it as a leader. Until then, however, here are some tips for CIOs and other sourcing professionals when considering short term sacrifices in relation to long-term objectives:

1. Pilot new ways to buy and implement software. Short term everyone is worried about the pennies — as they should be. But sourcing professionals can use the economy to work with hungry new vendors to pilot opportunities. For example, why not find some SaaS vendors that have functionality you need and pilot it by allowing end users to opt-in and “purchase” the software directly online? It’s one way to test how much end users value software if they have to go and get it instead of having it handed to them via a standard configuration. This could give you new insights into how to purchase and “market” software for your end users long term.

2. Get your existing providers to help you. It’s so tempting to give in to the CFO or CEO’s demands to cut costs by any means necessary. But if those means include locking you into a contract that is too long or too static, then you will have lost money in the long run. Instead, challenge your providers to help you with your goals. What can they do to add value or reduce your costs, and what do they expect from you in return? One member of our Forrester Leadership Boards told me about a day-long session they called with their suppliers, challenging them to return in three months with innovative ideas. The session produced 11 actionable ideas. And in return the providers only wanted fair compensation and the ability to garner more work over time.

3. Think about how to work with a new class of “enterprise” vendors. Our definition of enterprise suppliers is changing. Take a look at what the major vendors are doing and how it will impact the sourcing world. Already, there is pressure on IT departments to support iPhones in the enterprise. With Gmail and Google Apps, Google is forcing IT departments to reconsider provisioning model for basic utilities like email. And the list goes on. With these new products coming into the enterprise come new services and support challenges. One Forrester client told me that she wanted to include Apple Macs in a corporate RFP for new PCs but struggled with Apple’s inability to offer enterprise support — her sales rep told her that her 10,000 employees could go down to the Apple store if they had problems with their Macs! IT can’t avoid new vendors so sourcing departments and CIOs must think about how they’ll work with vendors who aren’t quite “enterprise ready” today but will become corporate standards in the future.

Christine Ferrusi Ross is a Vice President and Research Director at Forrester Research, where she serves Sourcing & Vendor Management professionals. She is giving a keynote presentation at Forresters Services & Sourcing Forum, October 6-7, in Chicago.

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