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Outsourcing remains strategic in the digital era

Outsourcing remains strategic in the digital era

Companies racing to digitalize their businesses are adopting cloud computing at a rampant rate. But traditional outsourcing also remains a crucial option for CIOs looking to free up valuable IT resources.

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With all its emphasis on forward-looking innovation, digital transformation is also triggering increased interest in an age-old IT practice: outsourcing.

Most CIOs are migrating applications to public cloud services, offloading operations and maintenance of computing, storage and other capabilities so they can reallocate staff to focus on what’s strategic to their business. The same is true of services more traditionally handled by IT outsourcing providers, such as back-office work and managed services.

The global IT outsourcing market, on pace to top $299 billion in 2017, is growing at an annual rate of 6.3. percent and will total $363 million by 2020, according to data Gartner released in June. That compares favorably to Gartner's forecast for public cloud services, which is projected to grow 18.5 percent in 2017 to total $260.2 billion, and $411 billion by 2020.

With the cloud a clear means for outsourcing workloads, CIOs are also relying on traditional IT outsourcing to fill talent gaps, support legacy applications and rein in costs. Here CIOs share their IT outsourcing strategies and profiles in support of digital transformation.

Outsourcing to the cloud

For Horizon Blue Cross Blue Shield of New Jersey, outsourcing has seen a veritable pendulum swing. In the mid-1990s, Horizon outsourced most of its IT functions to IBM, says CIO Douglas Blackwell. Envisioning a more strategic direction for the insurer's IT portfolio, Blackwell began bringing IT back into the fold when he joined the organization in 2011.

Doing so gave Horizon more control over how IT was governed, in particular by moving application architecture design and project management in-house. Partners such as IBM still perform most of the company's application coding, testing and maintenance, while Tata Consulting Services, Cognizant and others help with co-location, hardware and PBX functions.

"These folks turn the cranks for the people who decide technology and direction," Blackwell says, adding that Horizon prefers to purchase packaged software to custom application development.  

Yet Blackwell says Horizon's path forward lies in the cloud, including putting a new member portal on Amazon Web Services and email and other productivity functions on Microsoft Office 365. "A lot of outsourcing is moving toward SaaS and cloud-based environments from various vendors," Blackwell says. "That's the trend and it's where we're heading."

Back-office out, customer-facing in

Non-profit NACE International relies heavily on outsourcing because it has a limited staff of 14 IT people, says Nathan Lavigne, senior manager of IT at NACE, which provides educational materials and certifications for corrosion control. Lavigne has a simple gauge for what to outsource: Customer-facing solutions in, back-office technologies out.

"At the end of the day, there's no value in us doing the keeping-the-lights-on stuff," Lavigne says. "You have to understand what your core competencies are and also what helps you build partnerships in the organization with the business."

Lavigne outsources maintenance of infrastructure, including servers and virtual machines, to Konica Minolta Business Solutions. Network Box USA operates cybersecurity services for NACE because the organization can't afford to hire talent for cybersecurity. Lavigne employs an infrastructure lead to communicate with NACE’s outsourcers. "We have a lot of big projects and he corrals them all together," Lavigne says.

But NACE does its own custom development for customer-facing applications, including apps for course scheduling and logistics, Lavigne says. He also maintains help desk functions in house because customers prefer the "smiling face," personal approach.

Even so, Lavigne acknowledges that the path forward for NACE is the cloud, including ecommerce, public-facing websites, member communities and forums. NACE has also migrated to back-office cloud apps such as Office 365 and Skype for Business. While he estimates he lags two to three years behind industries such as retail in cloud adoption, he says, "What we have in a managed data center will be minimal, as we transition more and more to the cloud."

Freeing up resources with hybrid IT

Gregory Morrison, CIO of conglomerate Cox Enterprise Group, whose high-profile holdings include automotive and cable businesses, entrusts certain business functions, as well as configuration changes of Cox’s Oracle and PeopleSoft financial applications functions, to offshore partners. He characterizes these tasks as many, though small in scope, and easier to offshore.

While Cox consumes cloud services, including technology business management software from Apptio, Morrison insists he is no “cloud bigot.” Rather, he operates a hybrid environment, consuming cloud services and on-premises applications in addition to managed services.

“Not all of our systems must be cloud-enabled because that’s not going to happen,” Harrison says. “Nor would I say all of our applications need to sit on-premises in one of our data centers. You need to make the right decision on the application solution you’re delivering based on need of your organization.”

Outsourcing was the right decision for Carhartt CIO John Hill, who says it provides him more flexibility to focus on his digital capabilities, including ecommerce, 3D modeling and other tasks.

Hill earlier this year hired IBM to assume maintenance and support for the retailer's core applications, including its SAP ERP system. The move allowed Hill to reassign 25 staffers to work more closely on projects intended to accelerate the company’s digital transformation.

“With our new initiatives, we don't have to have people working and up late at night,” fielding support calls, Hill says.

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