THE RISE AND RISE OF OUTSOURCING
27 Feb 2019
As more and more IT companies chose to outsource their IT hardware and network requirements, your company should probably be doing it too.
If your company is wondering whether it’s better to outsource its Information & Communications Technology (ICT) needs or try to handle them in house, here’s a clue: hi-tech companies are outsourcing their own hardware and network requirements.
A prime example is Jasco, a JSE-listed technology supplier that has now signed cloud solutions for the hardware and software that its own business relies on. “We used to buy IT infrastructure as a customer and we had large teams of engineers to support our operations, but we now outsource some fundamental components,” says Eckart Zollner, Jasco’s head of business development.
“Changes in technology have accelerated to such a degree that it’s become impossible to keep up in some areas,” he explains. “Lifecycles are getting shorter with replacement cycles every three years or even more frequently, so the business model of owning the technology you use has gone away. How we use and interact with ICT has shifted and it’s now a service that you just subscribe to and access from any device in any location, while somebody else owns it.”
Jasco is involved in many highly technical fields, and even though most of its employees are IT experts, it often proves cheaper and more efficient to utilise a clound solution rather than owning the hardware outright. Imagine, then, how much extra work companies that don’t have a large pool of in-house experts are creating for themselves by trying to run their own hardware and software systems.
“With hardware, if you don’t replace it in time you get left behind, and that’s our supplier’s problem now. We just specify the services we need and sign a service level agreement,” Zollner says.
“More and more companies that used to own and invest in technology now just invest in the service. That brings you scalability and flexibility, because today maybe 30 people in your company need it and the next day only 20 people need it.” IT analysts have been predicting this model for years, but it’s finally gaining traction because of technology development and affordable stable network solutions.
Another prime example is the Internet of Things (IoT), where sensors can be embedded into almost any item to add intelligence and capture information about its location or its performance. “The Internet of Things only works if it’s packaged as a service,” Zollner says.
For example, it would not be worthwhile for a trucking company with 1,000 vehicles to buy a thousand trackers, install 1,000 SIM cards, boost its data storage capacity, install data analysis software and put a team in place to pore over the results.
“That becomes way too expensive, but what works is to subscribe to a service that tells you if a truck is deviating from the route or driving out of prescribed times,” Zollner explains. “It doesn’t make sense for customers to deploy IoT and contract with multiple suppliers on all the different device, network and analytical elements, but it makes sense to contract with one supplier who provides an end to end service.”
For IT vendors, this represents a serious earthquake on the once stable ground of selling expensive kit. As a supplier as well as a consumer of technology, Jasco is experiencing these changes from both sides.
“We used to sell individual products to a customer, help them make it work and walk away. We now have a massive focus on IoT services, so we’ve acquired a company that specialises in end to end IOT solutions and we are integrating it into the Jasco group,” Zollner says.
It has also changed its product lines because some items were being produced far more cheaply in the electronics powerhouse of China. Selling gadgets isn’t where the value lies - it’s how you use them that’s important - so Jasco is now selling solutions rather than products.
The change also required a fresh think about its financial model, as it can no longer rely on revenue from equipment sales. Instead it’s now signing longer-term service agreements with its customers.
Savvy IT suppliers can benefit from this growing trend through the scalability that comes from selling the same services to multiple customers. “In the past, hardware was dedicated to certain tasks and certain customers. Now it’s being shared and virtualised, and that changes the playing field because you can sell a service on a piece of hardware multiple times,” says Zollner.
But putting various hardware, software and communications services together to offer as an end-to-end package will demand new partnerships or acquisitions in the IT industry. “There’s certainly going to be consolidation around the infrastructure side,” Zollner predicts. There will still be room for smaller players if they move up the value chain by providing implementation and management services, he believes. “Big companies can virtualise and sell the same thing to hundreds and thousands of clients, but more agile services entities are going to be needed for the implementation and integration. Each business is different, so an integration component is required between the outsourced services and the infrastructure into the customer’s business.”
This is a learning curve for both customers and suppliers, he adds. “Customers have been used to doing something the same way for 20 years and as humans we are resistant to change.
That’s why it’s not happening fast – you first need to show the customer a proof of concept that’s relevant to them.” As more businesses realise the value in being able to track, monitor and analyse the big data being collected by devices on the Internet of Things, the technology partners to look for will be those that lease you a solution, not those that sell you a gadget.