Are the systems integration (SI) and application outsourcing (AO) spaces converging? We’ve been asked this question numerous times.
It does appear that in the large-company buying group that there is a trend to combine SI and AO services. By combining them, customers seek to reduce or eliminate the premium pricing on their SI services, which typically are much higher than AO fees.
While this sounds like a smart purchasing move — and in some instances it may be — don’t overlook the facts that this strategy comes with risks. If your organization is considering plunging into this strategy, you need to realize that it can shift to become a disadvantage.
Here are two ways that can easily happen.
Apples and oranges are priced differently for a reason
AO and SI skills are not the same. Systems integration services come at a premium price because they require more onsite resources plus a more senior blend of skills and usually more industry knowledge in the blend. The classic offshore talent so often used for AO services is less beneficial in SI services.
By combining the services for a lower price, you run the risk of your service provider populating your SI project team with AO-skilled resources. This will significantly increase the risk of your SI project failing.
Look out for the bursts
If SI and AO services converge to the same pricing for both, you will lose your flexibility. Providers utilize personnel assigned to SI groups differently than those assigned to AO groups. It’s an important distinction for the customer’s benefit.
Fundamentally SI projects are unpredictable and require burst capacity to satisfy customer needs at such time. An AO team has a consistently known quantity that the provider maintains and optimizes; but AO resources lack burst capacity to handle variations in project needs.
Our advice is to remember the fundamental resource capacity and skill problems that drove you to outsource SI and AO services in the first place and don’t dilute the power of your outsourcing strategy.
Although signing a contract for SI and AO services priced the same eliminates the SI premium and looks like significant savings — on paper — you will essentially put your project at risk because of not having the right level of skills and the burst flexibility to address your changing needs.