The Great Outsourcing Disruption
Insurance Experts' Forum, July 21, 2011
INN blogging colleague Ara Trembly, never one to shy away from a meaty discussion, saw new numbers that suggest outsourcing has slipped overall – with contracts declining 18% over the past year. The weak economy and heightened competition are playing into this, but Ara says things are set to heat up again, and insurers need to look to skills and expertise in North America as well as outsource for what they need.
I couldn't agree more with Ara. But let me suggest an alternative scenario that also is emerging, that is turning outsourcing as we've known it on its head. That great disruptive force on the horizon is called the cloud.
Some industry observers, in fact, predict that corporate IT departments will fade away as more mission-critical functions are moved to the cloud.
What is happening all over the place, in fact, is outsourcing engagements are collapsing into smaller-size chunks, thanks to the fact that systems and applications are being chunked up into bite-size services delivered over the Internet. We're likely to see fewer multi-million-dollar megadeals, in which entire operations and application sets are handed over to third parties, and more tapping into functionality, service by service. Small service cloud engagements may be harder to measure, and therefore much of this activity is slipping under the radar.
In a post last year in BusinessWeek, Arjun Sethi and Olivier Aries even went as far as to predict that “in the next five years outsourcing as we know it will disappear." Rather than turn to the large US, European and Indian service firms that have dominated the outsourcing landscape, they will be pulling services off of the likes of Google and Amazon, they say. “The outsourcing market is on the verge of experiencing its most massive transformation since the concept arose more than 20 years ago. For outsourcers, cloud computing creates an unprecedented opportunity to reshape how services get delivered. For clients, it opens up a new era characterized by the arrival of new players that are eager to build relationships and showcase their capabilities."
These new players, by the way, could just as likely be non-IT companies (such as insurance carriers) with large IT departments providing additional capacity to partners, customers, or even the broader market.
This is not a trend lost on outsourcers, either, who are getting into the cloud act themselves. For example, CSC, a big-time outsourcing provider, has decided to compete as kind of a high-end Amazon Web Services. Pam Casale, director of global cloud marketing for CSC, said in a recent interview that CSC's newly launched cloud services are similar to Amazon Web Services, but targeted to larger enterprises that need high-value or premium services. 'We like to think of ourselves as the Merlot of cloud,” she said. CSC's BizCloud features its CSC CloudCompute architecture, offering SaaS, PaaS and infrastructure services through an integrated technology
So, yes, the outsourcing numbers have gone down quite a bit, and it certainly relates to a reluctance among companies to spend. But there's a compelling value proposition in the idea of looking to cloud providers – be they traditional outsourcers or online booksellers – to acquire bite-size chunks of services when needed, paying only for what is used, when it is used. Call it just-in-time outsourcing.
Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.
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