CIO Straight Talk - Issue 4 - 42
A bank, for example, may outsource the development of
its reconciliation system to an IT service provider. The
service provider develops a system for the bank, buys the
rights to the system from that customer, and then modifies
or enhances the system for marketing to other companies. If
those companies sign on, both the outsourcing provider and
the original customer share in the profit.
The key word is "if": There have yet to be any highprofile examples of vendors able to take these commercialized systems to market in a meaningful way, says Schonenbach, of Trestle Group. "The model itself is a nice idea, but
commercialization is not the core competency of either
party," he says. "That's where it runs into challenges."
Customers also need to consider what the exit strategy
might be if the arrangement doesn't work. "If you're not
able to take it to market successfully, then what happens?"
asks Schonenbach. "Do you have an agreement to bring it
back in-house? What about your loss of key resources?"
But there are benefits beyond additional revenue to
outsourcing customers' taking a chance on commercialization. They rid themselves of the legacy system burden,
which presumably has been upgraded and is now managed
by a third party. And, as other clients come on to the system,
they benefit from the larger investment in system enhancements over the long haul.
"People within IT find it exciting - developing an application and selling it to the market," says Schonenbach. "The
go-to-market strategy doesn't happen in your typical
outsourcing arrangement." It requires customers to be
much more involved and visible in the marketing and sales
of the product. And the IT service provider needs the sales
capabilities to succeed.
Initially, Tier Two providers were most likely to enter
into such commercialization arrangements, but interest has
been increasing among big players as well. "There needs to
be an appetite to do it," Schonenbach says. "The more entrepreneurial suppliers are moving faster in this direction."
5. The Increased Signiﬁcance of Service Integration
The single-sourced mega-outsourcing deal - the shifting of
the majority of an organization's IT or business process
work to a single provider - is dead. In recent years, the
market has seen a significant move toward multisourcing,
which can provide the flexibility, cost competition, and
access to skills that enterprises need. "If you get the right
service providers with overlapping capabilities, it creates a
natural tension and competition," says Lee Ayling, head of
KPMG's technology sourcing practice in the UK. If there's a
service failure, the customer can take that percentage of
their wallet share and give it to another provider. Service
providers are getting used to that fact. "They don't have a
choice," says Ayling. "If it's a global [customer], the deals
are so big anyway, it's in the service providers' best
For buyers, the effective management of that multiprovider environment has become increasingly important -
and increasingly complex.
Ayling says. "The more strategic parts of service integration are being brought in-house."
46 CIO Straight Talk
J. Marc Mancher
"They've got four vendors
in three locations and then
another ﬁve locations
where they do the work
themselves, and they want
to ﬁgure out whether or
not they put the pieces