In an enlightening conversation with the head of IT at a large international group, I recently discovered once again just how difficult it is for companies to implement innovation. In an increasingly fast-track business environment, long-term planning often curtails flexibility.
The person talking to me works for an international group with over 400 sites around the globe. Thanks to the group’s expansion policy, there is also a growing demand for flexible, adjustable IT that “breathes” with business – in line with the requirements of any given situation. But the fact of the matter is that the group’s IT is outsourced to two external providers and is extremely inflexible, a situation frequently found at large companies. This means that when new companies are acquired, the opportunity to reorganise IT throughout the group and to win benefits on the market remains unused.
Why is it that the company is restricting itself? Well, first of all, it’s because of holding on to a conventional IT infrastructure that has grown over many years. Large groups cannot be criticised for their long-term planning. However, this always makes it difficult for those in change to adequately respond to the fast pace of the market.
A company takeover is a good point in time to implement new technologies with a new IT reference model, i.e. relying on software-as-a-Service (SaaS) instead of inflexible service provision. However, due to the long-term nature of outsourcing contracts, this means higher costs for companies. This two-model combination means that the new, more flexible cloud service must be integrated into existing processes. Since the computer centre and IT operating matters have been assigned on a long-term basis to another outsourcer, there is almost no alternative but to use them, i.e. the new service provider can only operate software and marginal issues without significant volume.
The potential of the cloud is wasted
In future, services will have to be vertically tailored so that computer centre services can be optimised and automated. Without the computer centre and operating components, which in the example of the large group would remain with the outsourcers, each solution would once again be an individual solution. This fails to make use of the real potential of the cloud, and the added value lost appears to prove right those who reject innovation. The company is caught in the outsourcing trap.
How, however, can a company remain flexible and innovative despite this outsourcing trap while at the same time continuing to optimise costs? One vital aspect is that outsourcing should be cleverly designed. Blocks that are too large hinder flexibility when changing providers. In the past, outsourcing tended to be horizontally tailored, i.e. the entire computer centre issues, including the networks, were assigned to one provider and the applications to another. Companies with such an IT infrastructure today need one partner who can make them fit for the digital transformation.
Instead of rigid outsourcing, there should be a mix that combines the use of existing computer centres, private clouds and public clouds and which is always open for shifting workloads from one direction to the other, depending on how this is needed for business. Application-centred thinking is also important. Because, ultimately, it doesn’t matter who operates the computer centre behind the application. Focusing on the application ensures flexibility when there is a change in provider.
Conclusion: Due to long-term contracts, large companies, in particular, are caught in the outsourcing trap with their IT infrastructures. Through a flexible mix that combines the use of existing computer centres, private and public clouds, companies can escape from this trap. Services should be more vertically outsourced rather than horizontally.