On-Site Labor Moves to SLAs

Cloud systems and services push outsourcers to move away from labor arbitrage to becoming IT consultants or partners. The cloud also shifts customer focus away from staffing to service-level agreements (SLAs). With IT systems providing a more cost-effective solution than any outsourced labor force, the outsourcers need to demonstrate higher levels of technological expertise, not just lower-cost work.

The continuing trend of IT mergers and acquisitions is forcing outsourcers to deal with more $1 billion-plus-income companies. Outsourcers get many requests for cloud IT projects from their existing client bases. The larger the existing base, the higher degree of cloud-related projects.

CIOs force outsourcers to price their services on value created, not time and materials. The increasingly granular nature of cloud pricing supports this change in pricing policies. Furthermore, these policies allow business factors to become increasingly aligned with an outsourcing engagement.

Services are now being bundled as one-line, one service-level agreement. Options are becoming fewer, because increased bandwidth now allows for increased content flow and because simpler is usually perceived as better. As outsourcers handle multiple portions of a client’s IT infrastructure, more and more deals are consolidated into a single service line.

The largest business-process outsourcing titans now are clashing with large cloud vendors, creating cloud opportunities for smaller players who can move faster and with more agility. As cloud offerings mature, outsourcers and vendors will develop service-based management platforms.

Outsourcers focus on talent, not cost of labor. Cost structures are less important in the cloud world, compared with the availability of relevant skills and their service quality.

Whether you are doing business in far-off locations, such as India, the Middle East or Far Eastern countries, geography becomes less relevant as technology trumps location. Physical location is also less important because quality of service is independent of any particular country.

The lines between IT and operations have become permanently blurred. Off-premise hosted services allow for outsourcers to be service providers. Ongoing service delivery involves as much operational expertise as IT expertise.

There’s a new focus on microverticals. Service providers are now being forced to drill down into specific market nuances. A more granular pricing and delivery model also calls for a more specialized value proposition for an outsourcer. Services should be delivered to solve very specific business needs.

We’re seeing the end of long-term deals. More granular pricing leads to shorter-term projects. New technologies allow faster exploitation of emerging benefits for consumers. This is driving a trend in which customers are moving away from committed, multi-year relationships.