Just five years ago, the outsourcing industry had its sights set on one thing: cost savings. And the industry buzzwords reflected this focus. Enterprises were first and foremost concerned with the benefits they could gain from labor arbitrage and from reducing their total cost of ownership.
Back then, organizations primarily sought to optimize their information technology (IT) and reduce operational expenditures. They engaged most frequently with information technology outsourcing (ITO) providers that could help them save money and modernize their legacy applications. Many organizations also used capitalization rules to extend the useful life of applications and continued to add functionality that could be capitalized (often well beyond the practical useful life of the application). These practices may have led to some short-term savings, but they resulted in significant technical debt in applications that could no longer be reasonably extended.
Today, enterprises are shifting away from thinking about outsourcing as a purely financial decision and increasingly considering it to be part of a business strategy critical to their success. Their new goals are to find and maximize value in a broader sense – not only running the business more efficiently, but finding new ways of connecting with customers and growing the business. Enterprises are embracing a wider ecosystem that includes traditional service providers, emerging new players in multiple geographies, and a vibrant startup and venture capital community known for bringing new ideas to market quickly.
A company may, for example, move its entire organization to a third-generation, cloud-based platform to take advantage of new capabilities and products based on sensor data, analytics, and data services. These new platforms (think of the Apple platform with tables, laptops, and mobile devices) integrate micro-services and APIs to transform traditional IT organizations.
Emerging and mature startups such as Mashery (a TIBCO company) or Apigee provide the foundation for managing platforms in an API-driven world and deliver new micro-services. Cloud-broker technologies such as Gravitant (an IBM company) and cloud-portfolio manager RightScale provide the platform to assess the cloud readiness of an application and allow the seamless transition from on-premises to a cloud-based deployment model.
These emerging technologies and associated companies are no longer fads. The largest providers in the market, the names we all know, are investing heavily in this market to manage the transition to new operating models that embrace software-as-a-service (SaaS), micro-services, data APIs, and the public cloud.
For the past several years, we have been predicting that, by 2020, 30%-40% of all enterprise workloads will be deployed in a public cloud. Based on the rapid growth in SaaS solutions, Amazon Web Services, Microsoft Azure, Google, IBM Softlayer, and other public cloud offerings, that projection may be overly conservative. Many of the G500 companies are on a path to transition from 70% to 80% of their workloads to the public cloud by 2018. In fact, studies show that 60% of all companies will use SaaS within the next 12 months and 84% of all new software hitting the market will be hosted in a cloud.
The last 24 months have been a true tipping-point period. Even as we were all busy becoming buzzword-compliant, trying hard to figure out what it all meant, the market was accelerating towards broad adoption of technologies that increased enterprise agility. As we enter 2016, our vocabulary has finally caught up, and we are using the words and phrases that reflect the rapidly changing role of IT.
The current lexicon has dropped its preoccupation with reducing costs and has taken up the cause for agility and speed to market. Instead of simply outsourcing to save money, organizations need their IT outsourcing service providers to help them maintain supply and demand, build applications and move workloads to the cloud.
Today, the buzzwords for businesses looking to transform are those that demonstrate a shift in priorities. They all want the same things.
- Agility: To move more quickly, fail fast, and make better, timelier decisions.
- Faster time to market: To prioritize the right things and release new products and offerings to the market and to internal users on a daily or weekly basis; to respond faster to market conditions.
- Product and Platforms: To shift from maintaining applications to developing new products and platforms.
- New market opportunities: To know how to take advantage of the opportunities of the digital market to transition to the as-a-service economy; to know which markets to go after; to monetize current data assets; and to know which services will enable an “Uberizaton” of the industry.
- Customer-centricity: to put the customer at the center of the digital agenda and identify the appropriate digital backbone components, customer insights, and customer engagement platforms to be successful.
- Hybrid IT: to leverage the public cloud, expand existing private cloud, maintain security, and build the enterprise of the future all at the same time.
What’s perhaps even more interesting than the change in buzzwords is the fact that the business — not the IT organization — is behind it all. Digital Business Units and Chief Digital Officers are defining the path forward, and many CIOs are looking to redefine themselves in this context. As IT shifts from an “operate” paradigm to an “integrate” paradigm, forward-thinking organizations are moving to platforms that can integrate services and micro-services from a broad spectrum of providers to create new offerings.
We couldn’t ask for a more exciting time to be in this industry. The change in vocabulary helps us visualize and more clearly articulate the value we are looking for. Total cost of ownership, labor arbitrage and offshore were the words we needed to create the global development community. But we have evolved, and the words we need now — agility, hybrid, time to market — are the ones that will help us create new digitally focused business models.