Outsourcing 3.0: Welcome To The Integration Age


The transition from first-generation, monolithic sourcing deals (Outsourcing 1.0) to a combination of multi-sourcing, offshoring and insourcing (Outsourcing 2.0) gave businesses more flexibility in securing the systems and services they wanted. It also saw them realise the benefits of competition among a wider network of suppliers.

Yet these new, more complex sourcing arrangements transferred significant integration risk back to client organisations. Today, complexity continues to increase – and there’s a new factor in play too. With technology-related services becoming key to helping businesses compete for and retain customers, the components underpinning these services must be expertly joined up to deliver a seamless and exceptional customer experience.

Outsourcing 3.0 – The Integration Age – has arrived and, to thrive in the new era, businesses have no option but to become brilliant at integration. Building the necessary integration capability will depend on three principles: standardisation, knowledge and collaboration.

How the Integration Age arrived

There are four key trends that herald the arrival of The Integration Age:

  • Cloud: Off-the-shelf, pay-as-you-go computing and related services (IAAS, SAAS etc) have arrived and are here to stay. Organisations are starting to look beyond discrete solutions, such as Salesforce or using Amazon EC2 for development and test activity, to sourcing strategic infrastructure services from the cloud. This will drive the disaggregation of services and solutions, resulting in more suppliers and additional points of integration.
  • Digital business: Organisations are moving beyond a definition of ‘digital’ that is limited to web presence, to one that encompasses the digitisation of all their information sets. Making sure customers enjoy a great journey and experience depends upon providing them with a simple, joined-up service. The sourcing components that underpin the service must be invisible, which makes integration a key capability.
  • Consumerisation: Discussion about consumerisation usually relates to devices, but the trend will expand to cover broader services. Business areas outside the IS function will increasingly select and buy solutions and services (mainly from the cloud) that meet their particular needs.
  • Pace of business/organisational change: Change is now a constant and IS must be flexible enough to allow business and organisations to move at pace in highly competitive environments. Being really good at integration is the only way IS functions will be able to support change at all levels.

How to become brilliant at integration

To address complexity, some organisations are starting to source key systems on an end-to-end basis. This transfer’s integration risk at the system level back to the contractor and, by aligning service provision with end-to-end processes, delivers better outcomes for users. But this isn’t a perfect solution.

To eliminate concentration risk and maintain competition in the portfolio, organisations need to avoid depending on one supplier. They also need to retain enough insight into end-to-end systems to manage the integration and delivery of related services.

A strong integration capability is still required and this should be based on three key foundations:

  • Standardisation: Increasingly complex sourcing environments simply will not work unless there are clear standards in place at technical, service, commercial and contractual levels. Clear standards will be key to enabling the IS function to reduce complexity and risk, and ensure users get the services they need.
  • Knowledge: The IS function will not be able to manage and integrate services without up-to-date and accurate information at its fingertips. There needs to be a single view of the truth. Having the right information artefacts in place and properly maintained will no longer be optional. Suppliers have a key role to play in providing the right inputs.
  • Collaboration: All suppliers within the portfolio, and the client organisation, must co-operate to make integration happen. The ‘hard’ aspects of collaboration (structures, capabilities, processes, tools) are important, but the cultural components (behaviours, hard and soft incentives, active management) are critical too.

As technology-related services play an increasingly important role in differentiating services and products and winning customers, businesses need their information services to deliver, and that has to be the priority – even above costs. Outsourcing is moving on. Welcome to the Integration Age.

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Mike Henley

Mike Henley is a specialist in sourcing and problem/dispute resolution in PA Consulting. He has over 20 years’ experience advising clients upon sourcing transactions and dispute resolution issues in the IT sector. Prior to joining PA Mike was partner with a major commercial law firm.

  • Richard Palmer_Fifosys

    What Henley is saying is absolutely correct; Outsourcing 3.0 is here and absolutely requires businesses to become integration savvy.

    However, just what skills do businesses need in order to manage multiple outsourced providers?

    There are currently no open standards regarding how providers should integrate, so in choosing to work with multiple outsourced providers to get the advantages of competition and flexibility – yet needing collaboration and integration to deliver the optimal customer experience – the onus is very much on the business to manage the relationship.

    Simply relying on your outsourced providers to work together is unlikely to succeed.

    Without the business and IT knowledge in house, or alternatively appointing one single provider to act as your broker, there are two primary risks that the business may face. Firstly, not everything will go smoothly and to plan; systems may not integrate as you expect and some serious knowledge will be required to resolve any integration issues. Secondly, and more critically, during periods of change such as upgrades and migrations, the business will be at risk of downtime unless the correct testing has been completed and that systems are again integrating as they should.

    What does this all mean for your business?

    The onus must be on the IT Directors to take control of this situation – and that will mean recognising and addressing gaps in skill, expertise and experience. It also demands that the IT Director embraces change today – even if the business is still operating on-premise. In order to take full advantage of Outsourcing 3.0 and realise the true value of technology innovation, IT Directors need to be empowered to take a proactive role in implementing corporate strategy and move from a role-based function focused on infrastructure delivery, to one of the Chief Innovation Officer with the strategic business insight to drive better decision-making.

    Of course, not every IT Director will have the skills or desire to become a CIO. And for those organisations without an IT Director it is worth considering the option of a virtual CIO, an individual that can work with the business to drive IT strategy and realise corporate objectives. But for the rest, it is time to take control and actively seek the right training and coaching required to take the existing skills set to the next level.

    Richard Palmer,

  • Tom – FIMS

    An excellent article and contribution from Fifosys, many thanks and keep up the good work :)