IT outsourcing: what does it take to get great service?

The outsourcing market for IT services continues to grow. And, according to our 2022 IT Sourcing Study, conducted in collaboration with Whitelane Research, average client satisfaction has reached its highest level ever, at 73 per cent. That’s an impressive figure, yet still leaves plenty of room for improvement.

Successful outsourcing depends on a healthy supplier-client partnership – something that’s becoming more important as parties work together to get the best from increasingly complex technologies. As in all good partnerships, the right balance of give and take is essential. But our study reveals that clients may not be such good partners as they think.

We asked hundreds of client organisations and IT service providers how much improvement they think is required across six core governance capabilities – the fundamentals that clients must have in place to play their role in the partnership. The answers from the two sides were very different: almost 70 per cent of service providers think their clients need to make significant improvement in many areas. On the other hand, only 29 per cent of clients, for their part, think they need to improve. This gap in perspective is so wide (almost 40 percentage points apart) that client organisations cannot afford to ignore what service providers think. Of course, as our survey also shows, there are areas where service providers can improve too (such as in contractual flexibility).

But in the meantime, if you’re a client organisation looking to invest in building a better partnership with your service provider, where should you begin? Our study identifies four key capabilities below where investment will bear fruit.

Improve transition and change management capability

Among client organisations, 29 per cent say they need to improve transition and change management capability. On the other hand, 67 per cent of service providers (38pp more) identify this as an area where clients have to make a significant improvement. 

For client organisations, it’s tempting to assume that the transition to new solutions happens automatically once a service provider is appointed. But, to ensure efficient transition, client organisations will always need to provide strong input. Being able to manage transition effectively, with a ‘clean and neat’ hand-over from the old to the new, will protect you from being stuck with two providers, effectively ‘paying twice’ (especially when incumbents control legacy systems and own all the knowledge). And it will help you avoid the higher costs associated with a lengthy and difficult transition between the old and the new.

Improve business relationship management and demand forecasting capability

Among client organisations, only 27 per cent believe they need to improve business relationship management and demand forecasting capability. By contrast, 47 per cent of service providers (20pp more) say clients need to improve in this area.

Good relationship management is fundamental to any partnership between client and service provider. Simply telling service providers “it’s all on you” can quickly lead to the relationship breaking down, with all the difficulties and expense this brings. So, investing in improving business relationship management is worthwhile. Similarly, improving demand forecasting will also yield benefits, enabling you to avoid building in headroom and paying for services you don’t need. It will also enable service providers to prepare to meet fluctuations in demand more effectively. For example, sharing pipeline/forecast of demand with service providers will go a long way.

Improve cybersecurity management capability

Cyber security management is where the difference in perspective between clients and service providers is at its widest. Only nine per cent of client organisations believe they need to improve their cyber security management capability, against 59 per cent of service providers (50pp more) who believe clients have to improve in this area.

The risks here are high. Cyber security breaches can result in loss of public trust, leading in some scenarios to massive financial losses (e.g. British Airways getting fined for £183m in 2019 due to a website fraud). The risks of a breach are increasing as more organisations move their apps to public cloud services.

Because they run the IT services day-to-day, service providers are likely to have a clearer picture of the sheer scale of the cyber threat – but they can’t protect every client organisation on their own. Strengthening your investment in cyber security management capability will enable you to work more effectively with service providers to maximise cybersecurity and protect organisational assets.

Improve cloud management and integration capability

On cloud management and integration, 29 per cent of client organisations said they need to improve their capability. By contrast, 60 per cent of service providers (31pp more) said improvements are necessary on the client’s side.

Cloud technology is now so central to business systems that any weakness in cloud management and integration can have far-reaching consequences for networks. For example, just imagine the consequences if you couldn’t use Microsoft 365 (and other apps integrated to it) for any length of time. Investing in building up cloud management and wider integration capability will help minimise the risks. It will also enable you to avoid dependence on traditional data centres, which are becoming a highly expensive and hard-to-source alternative to cloud storage.

Act now to retain control

Outsourcing is becoming a ‘default way of running IT’ – our survey shows that one in three organisations expect to outsource more over the next two years. But making a success of this strategy depends on both suppliers and clients being properly equipped to make the partnership work. Investing in core governance capabilities on the client’s side – and especially those where suppliers have indicated improvements are needed – will ultimately lead to a smoother-running relationship that maximises value from service providers.