The financial services market is probably the leader of the outsourcing and managed services pack. In tougher times like these, banks are far more open to considering or factoring in an incremental operating expense rather than submitting proposals to the board for new capital expenses.
Enterprises across the region continue to show a great propensity to increase spending in managed services. They are planning to adopt new forms of managed services over the next 12 months, almost without exception. Financial institutions have gone a step further and identified non-core business processes such as credit cards, cheques, backend processes such as claims management, content managements, and more, for truncation.
Troubled outsourcing waters
The rise of discrete outsourcing or managed services has been one of the major themes in recent times. Large long-term outsourcing contracts are not meeting some of the changing requirements and increasing needs of enterprises today, which are looking for flexible short-term contracts. In the US, Australia, and in some instances, India and Singapore, some of the long-term bank IT outsourcing agreements have fallen into troubled waters. An IDC survey published in 2007 found that 79 per cent of enterprises used two or more vendors for their managed services and outsourcing needs, with 43 per cent stating that they currently engage with 2.3 service providers.
The perception in the marketplace at the moment, especially in financial services, is that enterprises believe that a multi-vendor approach gives them a “better deal” for a variety of reasons including: access to best-of-breed players, lower pricing or greater cost reduction, and mitigating the risk of outsourcing and managed services by having more than one vendor. While the benefits and pitfalls of a multi-vendor approach were discussed in the survey, IDC did mention that it poses new challenges and risks to many enterprises especially for those who do not have the experience in dealing with these new sets of demands, challenges and multiple vendors.
It is noteworthy, though, that the small-to-medium enterprises (SME), and tier 3 banks are groups that have shown a level of satisfaction, higher than the overall average for the region, in dealing with multiple vendors and partners. This might seem surprising as it is the general belief that the small enterprises would prefer a ‘single point of contact’, a lot more than the larger enterprises or tier 1 banks.
Less complex for small enterprises
However, the managed services needs of a small enterprise are less complex and, as such, the types of managed services that they have engaged in tend to be a standardised product with little or no customisation. Furthermore, the extremely price-sensitive small enterprise will tend to ‘shop around’ to find the lowest possible price for any form of managed service. As many of these services targeted toward the small enterprise tend to be standardised, with little or no differentiation, by shopping around, the small enterprises are able to get the best deal in the marketplace, ensuring a greater level of cost reduction. This is one of the major benefits cited by enterprises that have multiple managed service vendors.
This is also one of reasons why large outsourcing vendors have completely ignored this (SME and tier 2/3) segment of the market as the market size and margins would not support their current business model. That said, the managed services needs of a medium and large enterprises are more complex. In addition, the reasons and factors that have driven them to adopt managed services, tend to spring from more than just a simple desire to reduce cost. Now, while cost reduction will always be a significant factor in any decision-making process, the motives of many medium and large enterprises and banks go beyond that. For them, managed services are about business transformation, technology acquisition, speed-to-market and productivity improvement.
Managing multiple relationships
The number one challenge, cited by 39.7 per cent of respondents surveyed by IDC, is the difficulty in managing multiple relationships. All relationships are fraught with problems, issues and challenges, dealing with multiple vendors only mean that they can be greatly manifested. IDC believes that not all IT managers have both the experience and temperament to deal with this. A related problem or issue is managing the multiple road maps and ambitions of all the service provides. This was cited by 20.9 per cent of respondents.
Daunting task
A multi-vendor ecosystem could mean a scenario where each of these vendors has a completely different strategy and vision for the enterprise, and managing these expectations and ambitions could be very daunting for the IT manager. Moreover, there are situations that exist whereby there are dangerously large gaps between what enterprises are willing to commit to, and what all their vendors are pushing for. Reconciling all these differences can be both exhausting, tense and, in some cases, almost impossible, for an average IT manager.
Adrian Dominic Ho is research manager, managed services and enterprise networks, IDC. Cyrus Daruwala is managing director, Financial Insights Asia Pacific.
