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Outsource magazine: thought-leadership and outsourcing strategy | August 17, 2017

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The outsourcing challenge for CIOs

The outsourcing challenge for CIOs
Outsource Magazine

The IT outsourcing market has matured significantly over the past decade, and in the last year alone we’ve seen industry growth of 15 per cent to £3.44bn, according to a recent report. Set against an economy where firms need to remain competitive and cost-efficient, the question is often not whether to outsource but rather to whom. Supporting this, research released at the end of 2013 found that CIOs were struggling to maintain and update existing IT infrastructure, resulting in an increased reliance on outsourcing.

IT outsourcing is the business practice of “farming out” all or some of the IT function to an external party; often a systems integrator (SI) will be part of this to ensure that any new applications or systems run together smoothly. However, while outsourcing can mean capitalisation on IT projects, reduced labour investments, and lower total costs for business applications, organisations are still facing the same challenges of IT backlog and compliance issues, while trying to keep all investment within budget. The difficulty of establishing and managing an effective and cost-efficient outsource model is well-known to organisations across the world.

CIO challenges

A big source of frustration for CIOs is cost transparency, according to a study by Compuware Corporation, which found that 71 per cent of CIOs across the world are frustrated by the “hidden costs” of outsourcing. Typical client expectations of outsourcing arrangements include return on investment, improved service delivery, delivery quality and lower operating costs. However, system integrators (SIs) still seek to contain their own labour costs that have risen over the years, while coping with inherited application complexity presents a significant ongoing challenge. Combined this creates and outsourcing imbalance and increases tension between businesses and SIs.

To make matters more complicated, technology is no longer just an IT matter, but a business matter, with most departments – HR, marketing and sales included – reliant on the assistance of systems and solutions in their day-to-day work.  As a result, Gartner predicts that by 2020 as much as 90% of IT spending could be decided by business teams other than the IT department. Not only does this mean there’s less IT budget for CIOs to play with, but also that CIOs need to adapt their role in the business accordingly.

A few months ago, three out of four respondents to a Gartner survey of CIOs agreed that they need to adapt their leadership style in the next three years to become more of a visionary leader for the business, rather than purely heading up functional IT. CIOs should also ensure they’re overseeing all outsourcing, rather than allowing specific departments to manage this, which will keep all projects aligned with overall IT strategy for the business.

Outsourcing application maintenance

While no two organisations – or outsourcing agreements – are the same, there are concerns that many major organisations are looking to outsource application maintenance for key parts of their IT portfolio experience.

The part of the portfolio being outsourced is, in part, motivated by the current difficulty, or cost, or sheer effort, of the client doing it themselves. Large monolithic core systems are often poorly documented, written and maintained by many developers over the years. This lack of insight and inconsistent approach make them difficult to enhance and innovate.

Another big factor that drives outsourcing of application maintenance is the need to remain compliant. Micro Focus research last year found that when the introduction of new legislation or industry regulation required compliance changes to be made to an organisation’s mainframe applications, 39% of CIOs on average chose to outsource application development and testing.

It can sometimes come as a surprise that the existing processes to support rapid application change are dated at best. While the client might outsource the task of change applications, what this offers is more warm bodies to do the work; what it doesn’t do is fundamentally improve the efficiency of the change process, which despite the outsourcing arrangement may still rely on older technology and processes which are not fit for 21st century IT delivery or user expectation.

CIOs can tackle operational inefficiencies such as IT backlog or compliance challenges to drive innovation quickly through a streamlined, cost-effective and efficient environment that supports the management and maintenance of core mainframe systems. This streamlined environment radically improves IT service delivery, helping to deliver time to value quickly.

Conclusion: getting even more value from outsourcing

With rising IT costs, lower budgets, increasing business demands, and a shortage of mainframe application skills, outsourcing is an increasingly popular option for businesses as they strive to provide a consistently good experience for their customers.

However, keeping mainframe-based application outsourcing on track and within budget requires a solution that looks across application development, testing and production. Businesses can take steps to help remove pain points for the SI by maintaining the mainframe, as well as delivering strict requirements. This will ensure that the delivery process is more efficient from the get-go and in turn saves on costs.

Regardless of whether or not this is outsourced to an SI or development company, it should be created with streamlined application change methodology, providing greater capacity for change and testing while reducing mainframe usage and contention in the long run. This way of working will ensure that everyone’s needs, from the business to the outsourced SI to the customer is met and can guarantee the best experience is offered on budget quickly to meet demand.

About the Author

Derek Britton 150Derek Britton is Director at Micro Focus.

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