Niche outsourcing providers drive greater value, cut red tape

Outsourcing has become a popular service model, particularly in the IT space, as it can help to deliver greater cost efficiencies and high levels of service.

December 10, 2012

By Gerrit-Jan Albers, Service Delivery Manager at RDB Consulting

Outsourcing has become a popular service model, particularly in the Information Technology (IT) space, as it can help to deliver greater cost efficiencies and high levels of service. However, a trend has emerged in recent years to move away from large multi-service outsource providers and towards smaller, specialist niche service providers. These niche IT outsource providers are providing a multitude of benefits to business.

This shift has occurred for a number of reasons, mainly due to the ability to drive greater value from outsource contracts. While each model has its own pros and cons, a more focused niche provider typically specialises in a specific area of IT outsourcing. This results in greater efficiency, better service delivery, a more granular view of the IT outsource service, and a significant reduction in the typical red tape associated with a basket of services from a single large provider.

Despite these benefits, larger IT outsource providers who offer a wide range of services have traditionally been popular, as they offer the perception of a ‘one stop shop’ for all of a company’s IT needs. This is an attractive concept, as it means that there is only one contract to manage for multiple services. A single contract decreases administration and the need to maintain relationships with multiple vendors. However, this single contract concept is also where the biggest detracting factor for multi-service outsourcing comes in.

The reality is that most large outsourcing companies only specialise in one or two areas and offer other services as an ‘add on’. This means that service levels are often inconsistent across the different services as skills levels within the provider are inconsistent. The challenge for businesses that are tied into multi-service contracts is to remove one of the services that they may not be satisfied with. This is a difficult and time consuming process and will require renegotiation of the entire contract. Engaging the services of specialised, focused service providers on the other hand, while it does require more maintenance of relationships and contracts, will ensure that service levels can be easily monitored according to specific services. If these service levels are not delivered according to the Service Level Agreement (SLA), contracts can easily be terminated and a new provider sourced.

While it may seem that outsourcing multiple services to a single provider will drive the greatest efficiencies, this is often not the case. Services are consolidated into a single contract and fee, which means that costs for each individual service are difficult to control. It is not possible to identify the individual cost of maintenance of each service unless the service provider is completely transparent and provides a granular breakdown.

With specialised contracts, this process is simplified and it is possible to easily manage and control spend on each service. This is becoming an increasingly important factor in light of King III recommendations and regulatory requirements, which require the justification of all IT spend and reporting to stakeholders on the effectiveness and value derived from each service.

Niche service providers also tend to be Small Medium Enterprises (SMEs). They are more motivated to deliver as their livelihood hinges upon their reputation for service delivery. Terminating the services of a single service provider that is not delivering a particular service is also far easier than trying to terminate a single service from a large basket contract. This in turn motivates the niche outsource provider to deliver better services. If a small company loses a contract, the impact is far greater than that of a large company losing a single service contract. SMEs also tend to deliver more personal interaction, more personalised service and better turnaround times, as these companies are typically more agile with more flexible processes.

IT Outsourcing as a model for service delivery is here to stay and continues to grow in the current economic climate due to budget constraints and the ever-present need to deliver better services for lower IT spend. However, the one stop shop model is no longer as popular as it has been in the past and we will continue to see an uptake in services from more specialised, smaller outsourcing providers who deliver better service levels and greater cost efficiency.