With the influx of new suppliers into the services market in recent years, competition has gotten fierce which has subsequently driven down prices dramatically. As a result, technology services have become increasingly commoditized, placing service providers’ profit margins under severe pressure.
This was a recent observation made by Singapore based IT solutions and services company Datacraft which also said that this new trend has gotten service providers revisiting their approach to IT service delivery, realizing that their future survival requires them to shift their emphasis from simply selling technology to selling and attaching services
Another significant change in the IT service delivery landscape noted by Datacraft is the maturation of sourcing strategies.
“Traditional outsourcing models are no longer satisfactory for organisations that are looking for service providers to contribute to strategic effectiveness and work collaboratively with them to develop solutions to business issues,” said Dexter Wee, General Manager of iBOSS, Datacraft Asia.
“This has resulted in a movement away from fully-insourced or fully-outsourced procurement models. Today, organisations are opting for selective sourcing or ‘Multisourcing’ strategies, where they contract several ‘best-of-breed’ providers to deliver specific kinds of services,”
With the advent of Multisourcing, companies are today making more strategic choices about which areas of IT to invest in and which to outsource to a service provider. Technology sales have been significantly impacted by the move towards Multisourcing as companies elect to steer away from costly infrastructure investments.
“When outsourcing to a managed service provider, the provider often bears the infrastructure risk, and the organisation’s expenditure becomes largely operational. This trend adds on to the woes of those traditional IT service delivery organisations which rely heavily on the revenue they derive from technology sales,” said Wee.
Increasingly, service providers need to think carefully about how they can position themselves to benefit from the growing popularity of Multisourcing, whilst protecting their revenues amid the shrinking margins on technology product sales.
This means focusing and developing higher-value services that address clients’ business objectives and outcomes, rather than technological goals.
According to Datacraft, clients are now demanding that their outsource partners provide greater levels of innovation.
“They don’t only want the service provider to run their infrastructure; they also require them to have the skills to evolve it and keep the architecture current,” said Wee.
“The ability to successfully create and deliver higher-value service offerings - which includes the capability to improve and innovate clients’ technology environments - will put service providers in a ‘sweet spot’ in today’s market-place.”
“Flexibility is a non-negotiable for service providers wanting to capitalise on the Multisourcing trend. In today’s sourcing environment, there’s no place for rigid engagement models and service providers must move past providing relative point solutions. They need to offer a range of modular options which give clients the freedom to engage on whichever level they’re comfortable with, and then add on new services as it suits their business,” said Wee.
The number of providers who have already moved into the Multisourcing space and are making their offerings more flexible, according to Datacraft. They are also adding new capabilities - either themselves or in conjunction with partners. In addition, IT service providers are forging alliances and partnerships with other key technology providers to offer integrated but distinct sets of solutions, in response to the move to Multisourcing.
“Focusing on partnering and interoperability means providers can offer the range of capabilities required to successfully deliver comprehensive Multisourcing services,” said Wee. |
