Frank Ridder

I am currently touring across Europe with a presentation on “Balancing Speed & Risk in Outsourcing”, targeted to sourcing executives and sourcing vendors. I start my pitch with 2 questions. Number one: “Which of you believes that we have passed the deepest point of the economic crisis”. The results across Europe are quite diverse. While in the UK and Paris the scepticism is very high (only 3-4% believe it’s over) it is a bit better in the Benelux countries with around 5% of “it’s over” believers. This week I was in the Nordic countries. Norway and Denmark around 8%, Sweden around 20%.
 
As this data points are hard to analyze as is, I asked a second question: “Who of you usually lives on the optimistic side of the life.” Broad consistency here. In all sessions around 80% of the people classify themselves as optimists. ..everywhere in Europe and people from oganizations and vendors dealing with Sourcing.

There is hesitation in accepting the few positive market messages shared in various industries. People believe more in the dark forecasts from economists and the governments in Europe. It seems wise to continue working on fighting the crisis but at the same time starting to prepare for the time after.

The weather over here is brilliant – blue sky, sunny and very hot. That leads to clouds and a high risk of thunderstorms. The relation of both is very well known in the science world. But are there any parallels between cloud providers, sourcing and some key elements of thunderstorms?

Lightning: It is interesting how fast the interest in cloud computing from buyers of outsourcing is growing. Every week I have discussions with organizations of all sizes about the viability of sourcing into the cloud. Is it ready to be an alternative? Well – examples like the Valeo deal of Cap Gemini and Google announced a few weeks ago are of significant size. Other enterprises are running successful pilots with cloud service providers. Things look promising, but then there is some disruptive lightning. This week I was talking with a service provider, who suddenly had to change their cloud based approach in a deal – as an international export law was preventing engineers outside Europe touching data inside Europe. We did not discuss all details – but this sort of lightning can be found in many places.

Thunder: While marketing and sales people, brochures and visionaries around the world bring the blue sky and the sun into the buyers life, there is also some ominous noise; the sound of thunder fed by scepticism. There is the thunder of those banging the maturity drum, which is still loud and hefty. While in some areas sourcers can leverage clouds already, there are other areas, which lack cloud based solutions. Another sound is the security sound. It has a high frequency and it is all around. It’s scary is that not all organizations can hear this high pitch – it is almost like the crisis put some earplugs into their ears. The last thunder sound is called integration. While cloud solutions can be bought easilty today, they still need to be integrated. An area where we currently see more questions than answers.

Heavy Rain: Not really. Clouds were born in a maturing industry – in a sense that provider/client relationships are based on solid service levels, reliable environments and based on value add. So not born by overheated atmospheres with electricity.  Cloud solutions which complement outsourced IT today have a good quality and maturity. But there is more to come as market gets more attractive. And it can start raining.

Solid sourcing strategies, which carefully integrate cloud based solution in the IT value chain, aligned to the real needs of businesses and a diligent cloud vendor selection can serve as an umbrella – as a protector for some of the risks which organizations face when thinking about sourcing into the cloud.

An article from EquaTerra executive Peter Iannone, published on equaterra.com recently caught my interest. I share the observation that many organizations currently try to speed up their outsourcing deal process to shorten the time to realise the benefits, especially in economically rough times.  But what reads like a promotion for EquaTerra’s term “Speed Sourcing” can add significant risk to organizations.

To name some of them: Organizations which limit their search to Tier 1 organization, may not find the best strategic option. Selecting one provider too fast – on the basis of a high level business case and a high level value proposition – will not enable the provider to give an accurate price and the number of assumptions which have to be made will inevitably lead to tough renegotiations later. These  renegotiations can also cause the privider to leave the table again and than the organization has to start from scratch. Another big risk is to leave out innovative new and economically very attractive solutions. The Speed Sourcing process also forgets to talk about the number one rule in contracting: Never leave any TBDs.

While I agree that there is a need for acting fast to save money and to shorten the time to benefits, the discussion should be led by considering the risk it imposes – organizations going down that road should balance the considered benefits with risks:

As an example, they could consider buying industrialized IT services, which are increasingly becoming a viable alternative sourcing option. These solutions come with a significantly shorter contract cycle. Predefined terms and conditions, standardized SLA’s and SoW’s allow a short time to contract. Of course this approach is not risk free – organiaztions lose their ability to full-stack-customization, but that is a very calculable risk.

I have a reasearch note in the works addressing this topic in more detail – which the topic deserves.

I am just back from a great week in Las Vegas, where we held our 2009 Sourcing Summit. Our presentations focused around practical Multisourcing – so did my numerous discussions with clients and vendors.

With the availability of new options on the market (e.g. utility computing, cloud services) the complexity of sourcing increases as these options are ADD-ONs to traditional ways of sourcing IT. In order to get sustaining value from these new options, organizations have to update and improve their sourcing competencies. Gartner clients can learn more about them, their benefits and can even assess their current competency level. Optimized competencies enable organizations to integrate new with traditional sourcing options in a lean and effective way.

Practical Multisourcing, especially in crisis times will also be a key focus on our sourcing summit in June in London. See you there.

Crisis Times. When people suffer a crisis, they dream, speak and debate about the “Good Old Times”. And in fact, many of those discussions are happening right now. Also in IT?

I guess there is another question which has to be answered first: What were the good old times in IT? Was it when everybody had a job? Was it when companies spent – overspent – in IT? Were they the times when CIO’s came into the office at 6am to confront a disaster? Or is it times when you realized your vendor over-promised what he could deliver?

Why not thinking positive? Now – in the crisis – we in IT finally can proof that we are a much more than a costly business unit. That we are a contributor to cost optimization beyond IT! That – being at the center of information, business process and staff - we can wisely support and often lead large enterprise change programs. And finally that we (and this belongs to the people in sourcing) can optimize the business value chain and range of activities alongside efficiency and efficacy.

I believe – this “Yes we can!” story is the IT chance within this crisis.

Will it be software companies such as SAP, scared about a potentially stronger competitor? Will it be companies such as HP, scared that a new end-to-end value proposition will sit at their clients’ tables? Or could it be mid market companies or SaaS providers, since a powerful cloud service provider might be the offspring of this marriage? It will take some time to find the answer – and it will take some time for this marriage to become a sourcing alternative.

I am a twitter user since quite some time and I am happy to be now a newcomer the GartnerBlog family as well. My coverage in Gartner is IT Sourcing - or to be more precise – IT Services Sourcing.  Especially in economic tough times, oursourcing has been an often considered way to face the challenge. In fact – many provider organization report high activities in their pipeline. This means a lot of discussion are going on – and a lot of help and support is required.

It is my hope that this blog helps shaping the sourcing complexity and supports finding a lean and practical way to approach this wonderful topic.

Blog to you soon !