The industrialisation of the manufacturing industry provides a lot of lessons to the modern day IT industry. For example during the manufacturing of cars, suppliers’ specialisations are maximised, with each supplier delivering their particular component to the final supplier (integrator) who will piece everything together. The cost of each component as part of the assembly is completely transparent as is the business outcome, the car itself.
The IT industry can, and indeed is, moving in the same direction. More and more outsourcing solutions are becoming less bespoke and providers are offering more standardised ‘plug and play’ solutions. Industrialisation is re-constituting the design, sales, contraction and provision of IT services. As Gartner explains, industrialisation is, “the standardisation of IT services through pre-designed and pre-configured solutions that are highly automated and repeatable, scalable and reliable and meet the needs of many organisations.” In my view, IT will become much more highly engineered. This article will discuss the positives and negatives of industrialisation as well as how the outsourcing industry will feel the effects of industrialisation.
Business critical and life-critical IT services cannot move forward if they continue to be produced in the artisan style to which the industry has become accustomed – high failure rates for IT projects, inflexibility of suppliers, high rate of renegotiation of contracts and an absence of structured IT delivery have all been common end user complaints in recent times. Industrialisation will force standards whereby such complaints could and should be eradicated.
Industrialisation does have many positives. These include:
• Industrialisation will, without a doubt, componentise the whole delivery model of IT. A componentised delivery model with specialised competence centres will take advantage of the specialisations of different outsourcing locations. This follows on from the multishoring outsourcing model, whereby an end user will choose a number of different suppliers, often with varying delivery capabilities in different locations, to complete a single outsourced project.
• Greater open standards will emerge, ensuring that when suppliers build certain components, they know how it will fit into the bigger picture and therefore they know exactly their delivery specifications.
• Industrialisation will bring greater benchmarks to the IT industry. At the moment the industry lacks common delivery standards. There are no specific industry measurements that dictate the quality and quantity levels that should be reached. If all suppliers are delivering a more standardised product, end users can much more easily benchmark both cost and quality.
The customer experience will become more predictable and the business outcome will therefore be more measurable from the start.
• Development costs will be lowered and these cost savings will be passed onto the end user.
However, industrialisation is not all positive. Companies have to be wary as there are some disadvantages:
Where high-end niche products are concerned, companies may stick with a more customised model. Solutions that are more complicated and have more intricate requirements are almost certain to need an IT solution that needs to be tailored. The IT industry, whilst being dominated by a handful of companies, still does not have sufficient and consistent standards. On the other hand, standardised solutions can provide the building blocks upon which a customised solution can be developed; this is the whole philosophy around SOA. Even a project that is incredibly complex might be able to use an industrialised solution at the base with certain customised elements layered on top. This is also an opportunity for suppliers to develop a niche service which can differentiate them from the more standardised market.
The other problem with the standardisation and industrialisation of IT solutions is the fact that technology is disruptive and ever-changing. Look at the IT industry now compared to ten years ago. Therefore building a ‘standard’ solution to all IT needs may work now, but the constantly shifting technological needs of companies may not be met in ten years time. Therefore the standardised solution needs to be sufficiently open, flexible, configurable and adaptable to constant market changes.
So how will this affect the outsourcing market as a whole? Initially, standardisation brings the reality that one level of competitive advantage is diminished. Whereas bringing in a supplier to put in place a high-level, high-quality (and probably very expensive) CRM platform might have previously yielded a direct ROI, the fact that the solutions are standardised means that companies need to gain an advantage over rivals in other ways. The most direct and simplistic of these is through customer service. This is particularly true in the banking sector where customer service is already a huge differentiator and the standardisation of IT services will mean that the customer service (rather than the IT) becomes the key differentiator.
In theory, industrialisation should open up the international offshoring market to a number of new locations which could deliver a good, standardised, service at a lower cost than their rivals. This would have a knock-on, negative affect on providers in traditional outsourcing locations such as India, as their service would be matched and their price margins eroded. However, the practice does not quite match the theory and in reality there are barriers to industrialisation – service delivery still needs to be led by high quality delivery methods, a highly automated infrastructure and most of all a product that is consistently beyond the quality level of some emerging offshoring destinations. On the other hand, emerging offshore entrants who do have the skills and infrastructure can now compete on the international outsourcing stage as benchmarks become more transparent.
As before, innovation is the key to prolonged success in the outsourcing marketplace, but this is not only within new technologies. Innovation of processes and commercial arrangements are becoming increasingly important.. The technology should lay the foundations and the challenge now is for companies to develop solutions that maximise the benefits delivered by the IT.
As the industrialisation ‘wind of change’ moves into the outsourcing landscape, firms will continue to operate a sourcing model whereby the innovation-oriented tasks with higher user interaction are conducted onshore and the lower level, process driven, ‘automatable’ tasks will be mainly conducted offshore. This will create an industrialised delivery model which is could be much more joined up, and relies on a global capability model.
Industrialisation is happening, and will continue to unfold (regardless of the positives and negatives), and it is having an impact on the outsourcing industry as a whole. IT suppliers are having to become more agile and innovative and adapt their processes, skills, tools and HR policies towards a new approach of working orientated to specialisation, without losing market focus. The IT suppliers that cope best will lead the market and those that cannot adapt will lag behind, creating further consolidation in the industry.
