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By Steve Hall, partner
First-generation outsourcing deals, the former behemoths of the industry, are going the way of the dinosaurs. Today, very few enterprises are sourcing their entire IT environment to a single service provider. Instead, most enterprises have adopted a multi-sourcing model in which they seek best-of-breed providers to support specific components of their IT organization. While first-generation deals typically included a transfer of assets to the service provider, organizations today are shifting more and more to a hybrid-cloud environment, one that leverages a blend of on-premises data centers and private and public clouds. These changes have dramatically impacted contract terms and duration. The average duration of outsourcing deals has shrunk from seven years to three.
Second-generation deals also have largely run their course. For the past half-dozen or so years, enterprises have sought and reaped the benefits of labor arbitrage, offshore delivery and Remote Infrastructure Management (RIM) solutions. But renegotiating these kinds of deals today typically results in more of the same. Most outsourcing contracts have been renegotiated multiple times with little more than lower rates or increased productivity as the best possible outcome.
Today’s deals—third-generation deals—reflect a whole new way of thinking. And, if done right, these deals will redefine outsourcing as a shared vision between the client and the service provider in which both share in the risk and reward of continuous innovation. To make the most of third-generation outsourcing deals, enterprises must, above all, anticipate the new realities of business and accomplish these Top 5 goals:
ISG helps enterprises craft outsourcing deals that enable a whole new generation of benefits. Contact me to discuss further.