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Top 5

Strategic Sourcing, Operational and Market Trends to Watch in 2014

by ISG

ISG expects the new year to bring continued fundamental change in how clients and service providers structure and manage sourcing contracts. This includes an increasing emphasis on cost transparency and service integration, as well as greater measurement and discipline in how clients manage and deploy cloud services. ISG also expects significant growth in several key market sectors, as well as continued specialization along industry lines.

The following Top 5 key trends will define the sourcing and operational agendas of enterprises in 2014. They are based on a recent survey of ISG sourcing experts and industry specialists.

1. Margin trumps revenue. The “your mess for less” outsourcing model continues to give way to a collaborative approach, whereby clients and providers recognize the benefits of standardized processes for IT service delivery. While clients gain a higher level of efficiency, service providers can drive economies of scale across multiple clients. As a result, the business imperative shifts from maximizing deal size to increasing profit margin. This dynamic will intensify in 2014, as social media, mobility, analytics and cloud (SMAC) technologies and automation become more widely adopted and as operational transformation becomes the rule, rather than the exception.

2. Cost transparency becomes paramount. Enterprises will increasingly focus on gaining transparency into IT costs and how these costs map to service delivery, consumption of IT resources and business outcomes. Businesses seeking to transform their operations are finding that aligning IT finances and IT operations provides critical insight into total cost of ownership of IT – insight that is essential to identifying and evaluating alternative options at the front end of transformational initiatives, and to successfully implementing service delivery models.

3. Service integration matures. Following a period of experimentation with various outsourcing models, client organizations will claim service integration as a core competency and bring key functions back in house. A solid internal service integration capability allows the flexibility to onboard new and specialty service providers. Clients will place greater emphasis on mechanisms such as governance forums and provider workshops to facilitate collaboration across provider teams and effective management and integration of changes in service provision.

4. Measurement discipline enhances cloud computing. To date, cloud services haven’t been readily approached with analytical rigor, and businesses have struggled to effectively manage them. In 2014, ISG expects clients and service providers to further define their strategic objectives for cloud services, applying consistent metrics to quantify their return on investment and optimize service contracts. Clients will increasingly leverage measurement frameworks, such as the Cloud Services Measurement Initiative Consortium (CSMIC) Service Measurement Index, to enable meaningful comparisons of alternative solutions.

5. U.S. healthcare transforms under the Affordable Care Act. 2014 will see payers and providers responding to legislative incentives in the U.S. to implement more coordinated and efficient delivery of care. The transition from the fee-for-services model to bundled payments will create opportunities to expand outcome-based, end-to-end service management models across treatments, supply chains and service chains. Implementation of these models will expose duplication and complexity, which will increase consolidation. Optimizing consolidated operations will, in turn, present a new set of challenges and opportunities.

ISG advisors help private and public sector organizations transform and optimize their operational environments. Contact David Whitmore to discuss further.