Strategic outsourcing in turbulent times

Dhanawat Suthumpun is IBM Thailand’s country manager for global technology services

While there is no doubt that IT is a key enabler of business process transformations, it has become a challenge for managements to justify IT spending when they are under general pressure to cut expenditure and show faster returns on investment.

Does cost-cutting mean that long-term strategic objectives must be compromised? Or is it possible to incorporate short-term cost-cutting goals into long-term strategies?

It is worthwhile exploring how strategic outsourcing benefits can begin with near-immediate cost reductions and cash flow benefits, while retaining long-term objectives of creating organisational sustainability, innovation and growth. The following are points that should be considered when companies are searching for the right balance, and are thinking of strategic outsourcing.

Get more out of your existing business-IT infrastructure

Based on recent IDC research, it is predicted that "energy consumption and space constraints will continue to drive investments in transforming data centres". The successful implementation of virtualised infrastructures can significantly shrink server requirements and reduce carbon footprints, resulting in better maintenance and energy savings. Recent cuts in business travel have also meant that there is a greater need for better network infrastructure to support remote conferencing. IT vendors are now able to help clients to optimise their networks, to enhance performance and reduce operational costs, either by acting as a managed service provider or by providing expertise.

Turn Capex into Opex

Since 2008, companies have been slashing capital spending to reduce excess capacity and preserve cash. Strategic outsourcing helps companies turn capital expenditure (Capex) projects into operating expenditure (Opex), giving them access to needed capabilities without the pain of hefty investment.

Access alternative sources of funds

A good strategic outsourcing partner can help companies in ways beyond pure arm's-length transactions. In addition, alternative financing schemes can help companies tap into non-traditional pools of capital in tight credit markets. Flexible financial structures can also assist enterprises in managing the cash flows associated with IT implementation projects.

Transfer risk via a revenue-sharing model

With a revenue-sharing model, vendors are aligned to client interests because they are paid according to the value they generate and share similar risks. In fact, this model works particularly well for companies with limited IT budgets as such companies can avoid large up-front investment costs while the vendor reaps greater future benefits, creating a win-win situation.

The current recession can become an opportunity for enterprises to gain market share as sluggish competitors fall by the wayside. Firms should focus on innovation and providing exemplary service, which are vital drivers of growth. By using the experience of their business partners through strategic outsourcing, companies are able to rapidly reprioritise their businesses to focus on their core competencies. Budgets are not placed in jeopardy.

However, there are challenges in strategic outsourcing, such as retaining and protecting key talent or convincing stakeholders to support transformational projects. The ability to manage intra-organisational and supplier-partner relationships through strong leadership, good governance and clear communication channels are important factors in smoothening out these transitions.

Dhanawat Suthumpun is IBM Thailand's country manager for global technology services