Challenges and solutions to improving IT sourcing strategies among enterprises

• DX is the continuous process by which enterprises adapt to, or drive disruptive changes
• A key ingredient of DX is the seamless blend between digital and physical aspects

ACCORDING to IDC 2016 IT Services End-User Survey, only 34% of Malaysian enterprises are undertaking a Digital Transformation (DX)-related project.

IT services providers in particular are struggling to succeed with advanced digital services offerings that utilise the latest 3rd platform technologies such as big data, cloud, mobility, and social technologies.

IDC defines DX as the continuous process by which enterprises adapt to, or drive disruptive changes in their customers and markets. This is achieved by leveraging on digital competencies to innovate in the creation of new business models, products and services.

A key ingredient of DX is the seamless blend between digital and physical aspects aimed at enhancing business and customer experience while improving operational efficiencies and organisational performance.

For enterprises that have embarked on their DX journey in Malaysia, the primary drivers are the need to deliver superior customer service experience and to reduce costs. These enterprises recognise the need to cater to today's tech-savvy, digital customers and have put in place a suitable DX strategy based on meticulous evaluation of the performance of various technologies that can deliver products and services personalized to customer preferences.

Current scenario for IT sourcing in Malaysia

The majority of organisations in Malaysia are hesitant to adopt new technologies due to a lack of understanding of the need and advantages of implementing DX in their organisation. This explains why organisations aren't prepared for the DX transition, with most of them deciding to still wait and watch.

"Despite this, the adoption of DX strategy will expand in the next 24 months," states Sreenath Kandarpah, IT Services research manager, IDC Asia/Pacific.

"With the improved economic climate, enterprises will increase their IT spending, and a sizeable portion of this spending will be on 3rd platform services, leading to digital transformation projects in the long run. In the short term however, some of the early challenges organizations are facing while adopting DX include the lack of business case on the need for DX, and the lack of top management support," he adds. 

These findings clearly indicate the growing need for service providers to create awareness, build use cases, and deliver the implementation and integration DX, as well as support and training services to these enterprises.

The IDC 2016 IT Services End-User Survey also unveils that many organizations are lacking the required internal IT skills and are increasingly interested in engaging external service providers to build their DX strategy and integrate 3rd Platform technologies with their existing architecture.

This offers tech vendors more opportunities to provide consulting and integration services in relation to DX. In this regard, it is important to note that often, the IT department remains the key decision maker in charge of evaluating the right technology, solution, and processes in most organizations.

Security a major focus, BDA most popular technology to be adopted

Security services are expected to be a key enabler for digital transformation as cloud, mobility, and Bring Your Own Device (BYOD)/Choose Your Own Device (CYOD) become more prevalent. In other words, an enterprise’s DX journey will fail if the security risks are not addressed at the early stage of adoption.

According to the IDC survey, Big Data Analytics has emerged as one of the key themes for IT services spending in the Malaysia market. "As enterprises look into DX initiatives, organizations will need to dedicate resources and provide them with specific and advanced trainings on the new advancements in BDA technologies. Analytics can help create more opportunities for organisations to differentiate themselves," says Sreenath Kandarpah, IT Services research manager, IDC Asia/Pacific.

Lack of skills, infrastructure, and mindset are major challenges

Given the lack of in-house skills and expertise, organisations in Malaysia are looking at consolidating their third-party service providers for their infra services requirements and working with a trusted lead service provider. Enterprises prefer a single point of accountability and engage with a lead infrastructure services provider that can assist them with critical business decisions and management of the other vendors.

For this purpose, it should be noted that organizations in Malaysia sign short-term outsourcing contracts (i.e., an average of 2.2 years), further indicating that they are generally cautious about adopting a new technology.

The lack of IT infrastructure that is ready to utilize 3rd platform technologies can be a disadvantage in adopting DX journey. Majority of enterprises in Malaysia prefer to source out the infra services to third-party service providers due to lesser risk and lack of internal skill and resources.

What can Malaysian enterprises do?

Digital transformation is driven by technology, process, and people. Most Malaysian enterprises are facing compartmentalized departmental structure where the IT department is working alone on embracing DX technology while other departments are operating traditionally.

In this regard, 47% of enterprises in Malaysia have made no change to their IT sourcing strategy, despite the changing nature of their business in the coming years.

"IDC believes DX will have a major impact on Malaysian organizations, with greater chances of success to those that are quick adopters. Enterprises should re-look into standard company processes with the growing adoption rate of DX in Malaysia. Currently, most organizations are consolidating their third-party contracts, thus reducing their risks," says Pranabesh Nath, research director, IDC Malaysia

Some organisations have started building responsive business processes so their design and process changes can be handled rapidly.

This can help reduce lead time to roll out new products and address customer complaints quickly, keeping such businesses ahead of their competitors especially in the contexts of delivering superior customer service experience, product differentiation, and price war to win customers.

IDC predicts Malaysian enterprises  will start adopting Digital transformation more aggressively in the next 24 months as enterprises in Malaysia are faced with fierce competition and price war to win customers, digital technologies should be optimally as a leverage to deliver superior customer service experience and create competitive advantage through product differentiation. Howewer, with the lack of IT skill, enterprises will start leveraging service providers’ skillset and experience.

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