Written By: Rick Beers, Senior Director - Product Managmeent, Oracle Fusion Middleware
I was doing a little
research last week on some of Oracle’s customers who best exemplify the
architecture of AppAdvantage and stumbled upon something unexpected when I checked up on Melbourne,
Australia’s Yarra Valley Water. They have recently begun insourcing IT, bringing previously outsourced
IT services back in house, as explained by last year’s itnews article entitled “Insourcing, the New Black”. Reading it got some creative juices flowing.
trend towards IT insourcing (or ‘back-sourcing’, as it is also known) has been
widely reported over the past two years. Much of the analysis has been
anecdotal and tied to high profile examples such as General Motors (‘GM will slash IT Outsourcing’) and Delta Airlines (‘Delta Airlines to Take Control of its Data
Systems’). IT spend is
notoriously difficult to track consistently so short term trends are
unreliable, but there is clearly something going on that is beginning to
reverse a 25 year trend.
outsourcing virtually exploded during the mid-late 1990’s, the result of the
industry-wide success in standardizing business processes and business data and
the ERP systems driving them. Until that time, IT outsourcing was largely
limited to hardware and infrastructure within a hosting model. With the broad
adoption of ERP, business process and data standardization, both real and
perceived, produced the business case necessary for platform-wide outsourcing
to succeed. As ERP matured and began to commoditize during the 2000’s, the
trend accelerated. Lately the trend lines flattened and by some measures have
actually begun to reverse. Deloitte recently published an extensive analysis of
this developing trend (‘From Bangalore to Boston, the trend of
bringing IT back in-house’).
it is certainly part of a broader trend of operational insourcing over the past
4 years, led by high profile cases such as Starbucks, Caterpillar and GE. Most
often cited as core reasons for the shift are (1) the need to get closer to the
customer, (2) the pace of business change and (3) escalating wages in countries
such as India and China as their economies mature. But the more I think about
it, the more it appears that something else may be driving IT insourcing;
something more impactful. The underreported driver of IT insourcing may very
well be the role that enterprise technology is playing in what might be the
beginning of a disruptive cycle in the traditional IT outsourcing model.
IT is becoming a strategic capability
again after a 20 year
cycle of commoditization and cost cutting. The Big 4 of Innovation, Social,
Mobile, Cloud and Big Data, are elevating IT to a leadership role in the
development of enterprise strategy rather than in just implementing a strategy
already established. IT operational skills, particularly those of enterprise,
process and technology architecture, are becoming core strategic assets that
belong in house.
Enterprise technology is
disintermediating away from
the ERP centric models of the past 25 years to a hybrid of ERP and Best of
Breed, interoperating in real time thanks to maturing Integration and Identity
Management capabilities. Layered
enterprise systems frameworks, such as Oracle’s AppAdvantage below right, are allowing enterprises to
decouple processes that should be agile, such as Talent Management t from those
that should be standardized (such as core HR). This in turn allows outsourcing
to accommodate standardized processes (aka ERP) while keeping control of
technologies and agile processes in house.
Finally, the Cloud itself is a type of
IT outsourcing. With the
emergence of Platform as a Service and Infrastructure as a Service to add to
the maturing SaaS market, IT organizations can effectively outsource parts of
their operation while retaining control of how they are architected and
operated. This is probably the most disruptive of all forces driving IT
insourcing and it will continue to accelerate, perhaps exponentially.
be sure, IT outsourcing is not going away, rather it is evolving away from al
all-in, platform model to one designed to accommodate a variety of business
models, providing CIO’s levers to pull in influencing and executing their
enterprise strategy. Above all else are the 2 C’s most valued by IT leaders:
Control and Choice. Such leaders can finally be bound by the requirements of
the enterprise, not by restrictive technologies.