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Why companies opt to insource for IT innovation

Stephanie Overby | March 17, 2015
IT outsourcing customers are increasingly demanding IT innovation and will either look to providers to deliver real business outcomes or take their innovation-related business back in-house to run themselves.

Meanwhile, consultancies like Accenture and Deloitte are pitching themselves as sources of IT innovation to companies. "These players have generally stayed out of the highly price-competitive and sometimes asset-heavy infrastructure marketplace," Slavin says. "These consulting firms have a business model built on human capital, one that focuses on skills and experience and is better-suited to deliver technology relevance and alignment with the client's business. They're also committed to ongoing training and are willing to carry out needed trimming of non-performers. Finally, they're able to avoid the episodic large mass workforce reductions that plague the large outsourcing firms."

It's too early to say which approach will win out long term.

"The most challenged players will continue to be firms like IBM, HP and CSC," says Slavin. While they are trying to reorganize to provide vertical solutions like mobility, cloud and analytics, they remain desperate to hold and serve their big clients to avoid revenue run-off.

"HP and IBM have great hardware, and clients expect innovative solutions that take advantage of that great hardware," Slavin says. "Unfortunately, the outsourcing organizations seem to be lagging at enabling and accessing the emerging technologies needed to drive innovation."

Indian providers will continue to grow their market share, says Slavin. "The challenge for this group is to grow into more profitable markets and expand footprints in clients fast enough to stay ahead of aggressive pricing, which is built into their deals as an investment to win."

In the short-term, IT outsourcing customers will either be looking to providers who can provide real business outcomes or taking their innovation-related business back in-house to run themselves.

"Innovation is always in the eye of beholder. It's hard to argue with something that aligns with the client's business and moves that business forward," Slavin says. "So the winners will be those who can provide applications and the supporting infrastructure and link them together as a product, service, or offering that focuses on and is tied to the business."

 

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