The benefits of IT outsourcing are still there despite protectionism
Where does IT outsourcing stand today? Sources show that the growth is there: the global data analytics outsourcing market was valued at $2.49 billion in 2018 and has an expected CAGR of 25.8 percent from 2019-2027, leading to $19.36 billion by 2027. But it’s even more interesting to examine how this growth will likely be affected by recent protectionist movements, such as the new US foreign policy and Brexit.
The research conducted by KPMG’s Shared Services and Outsourcing Advisory (SSOA) in order to analyze information technology and business process outsourcing deals with total contract values of over $5 million shows that APAC has become the key buying region for outsourcing services, with 37 percent of enterprise buyers there intending to outsource. Simultaneously, concerns are growing over the changing landscape that has been shifting from classic offshoring to domestic job protection.
Amid these conflicting moods, one must reflect on IT outsourcing’s inherent benefits that make companies turn to this age-old cooperation model time and again, and see whether there is still a place for it in modern economic conditions.
Still all quiet on the outsourcing front?
Anna Frazzetto of the Forbes Technology Council made an excellent point about the rising wave of IT outsourcing business repatriation from offshore centers like India back to the US soil, especially with regard to President Trump’s protectionist politics. Moreover, Brexit has added anxiety across every domain that relies on supply chains.
While “reshoring” remains a trend, we need to distinguish between outsourcing and offshoring—contrary to popular belief, the former doesn’t equal the latter. Outsourcing doesn’t necessarily mean hiring international contractors: it could just as easily be local talent working for you from outside your in-house team.
That being said, Trump’s politics and Brexit shakeups likely won’t influence the outsourcing status-quo very much where it pertains to companies’ original outsourcing motivations, as demonstrated by our many clients at Itransition: cost optimization, core business focus, and rare talent access, among others. This means that even when we see negative figures, it likely reflects how the offshoring-outsourcing entanglement is related to bringing information technology outsourcing (ITO) back home but not to stopping outsourcing specifically.
To outsource or not to outsource?
The bleeding edge of every IT project is composed of many important decisions that need to be made, but perhaps most pressing of all is whether or not to outsource.
Aside from the offshoring confusion, many businesses shy away from outsourcing because of the perceived risks of IT outsourcing, as Itransition demonstrates. However, these can be mitigated effectively through a vendor’s long-standing collaborative experience and appropriate project management methodologies.
It’s true that not every project should be outsourced. If a project is complex and requires constant involvement with the customer’s business, relying on in-house teams might be a better option. Furthermore, the industry type plays a big role in this decision, so highly sensitive projects for regulated industries, where security breaches can wreak havoc, should be planned carefully. Projects involving sensitive data like in healthcare or information technologies, as is the case for many startups, should be approached cautiously. Yet top-tier outsourcing vendors know many technical and legal tools for solving these exact problems.
Another option calls for a mixed approach combining in-house and outsourcing specialists within the same project. This works wonders by balancing the value of external talents with the security of keeping business-critical data within the customer’s organization.
Considering all of this, if your project suits the outsourcing model, the payoffs can prove to be truly impressive. In an ideal world—where businesses rejoice in unlimited budgets, open deadlines, and zero competition—outsourcing would be completely unnecessary. But outsourcing gains traction when the economy is recovering from major downturns and the faster time-to-market imperative grows stronger.
Yet, as we’ll see below, IT outsourcing offers much more than cheaper and faster development.
New focus on value-driven partnerships
If you’re going to outsource, strive for the quality that outsourcing can provide. Overall, ITO maintains a better quality-investment ratio and the total value you get from the collaboration.
This emphasis on quality is driving the current trend of outsourcing customers hoping for high value in their partnerships. This drive also nullifies the offshore argument, as the focus shifts to the ITO vendor’s competency and which business outcomes are achievable through this cooperation versus the vendor’s location. Factor in the reasonable pricing of ITO services, and there you have the new value-based outsourcing model that businesses simply refuse to give up on.
The digital realm has generated shoulder-to-shoulder partnerships based on shared understandings of business outcomes, where the outsourcing vendor is proactive and helps their client to innovate effectively.
This innovation focus is hardly accidental. At the moment, technological innovations are growing in visibility as key business differentiators, which is precisely where ITO partners can prove the critical nature of their role.
By focusing on their core business, be it healthcare or logistics, most companies don’t have the right skill set to wield innovations that could transform their operations to be more efficient and competitive.
The recent advances in artificial intelligence, internet of things, cloud computing, and blockchain are potent examples. From better customer experiences to more transparent transactions and accelerated data exchanges, these advances can help propel businesses to a new peaks of workflow optimization. Yet they may remain out of reach due to the in-house staff’s lack of technological proficiency. That’s where IT outsourcing can become an innovation gateway.
Companies should choose the vendor with a healthy pool of software engineers who are well versed in the required competencies and, more importantly, have a track record of related projects. This allows innovation-oriented companies to stay competitive by removing their technological barriers and focusing on their chief lines of business.
NACE International is a prime example of this approach. The corrosion control non-profit found success by outsourcing its cloud infrastructure maintenance and cybersecurity to external vendors. This makes room for the company to continue developing its customer-facing applications in-house without losing focus.
A step up for business growth
IT outsourcing may be less beneficial at a high level and more so in an operational way. You may be a small or mid-sized company that requires specialized competencies but has neither the office space nor the human resources to arrange the required talents. Or it may be a short-term engagement designed to briefly develop the reporting tool you’re lacking, perhaps an employee intranet, so that you can expand your business without leaving your entire in-house IT team with nothing left to do.
IT outsourcing was conceived to help companies take critical steps on their business development journey. Delegating tech-related responsibilities to an external partner can end up being an excellent strategic decision.
Final considerations on project management
This brief review demonstrates that IT outsourcing in 2020 stands firm, relying on its time-proven benefits and reinforced by the current focus on value over threadbare cost-cutting. Yet some considerations still need to be made regarding the critical role of project management in ITO success stories.
Utilizing a vendor can be bliss for inherently non-IT companies that are inexperienced when it comes to managing software development projects. Outsourcing providers have cut their teeth on both Waterfall and Agile practices, as well as their spin-offs and hybrids. This means that their customers can confidently choose from a variety of methodologies.
Another consideration is the dichotomy of utilizing either freelancers or full-scale outsourcing vendors. While hiring freelancers for sporadic or minor software development gigs like occasional website development is common, outsourcing vendors offer so much more:
- Larger pools of diverse competencies and skills apt for multidimensional projects.
- The dedicated team option that bring together full fledged project teams with all the required roles covered.
- Enterprise software licenses and advanced partnership statuses that make specialized platforms as Microsoft Office 365, Oracle, Magento, and SAP accessible.
- A solid organizational foundation, corporate ethos, and stability derived from contractual respect.
- The opportunity for personal intercompany connections to develop higher collaborative synergy through regular on-site visits.
Finally, the last consideration is reiterating the importance of having a single contact point in any IT outsourcing project.
For overall project efficiency, assigning a project manager, team lead, or business analyst on the customer’s side so that the vendor can help build the bridge is strongly recommended. The entire partnership can then become transparent and manageable so long as the vendor makes sure to have their own contact point on their side.
This project management imperative becomes much more important when viewed in light of the value-based partnerships described above. As soon as both parties connect through the structural level, achieving this gets a whole lot easier.
Dmitry Azarov, Chief Marketing Officer, Itransition