2020 may turn out to be a pivotal year in the IT outsourcing marketplace. It has become a new norm now. Outsourcing has easily managed to reshape the way businesses work with their enormous benefits. As a result of this businesses are now looking forward to influential strategies.
“Digitalization and globalization are rapidly evolving customer expectations and demand a shift in how leaders responsible for logistics approach outsourcing strategy,” says Courtney Rogerson, Senior Principal Analyst, Gartner.
Last year, the IT outsourcing industry was worth $92.5 billion that is 7 billion more than 2018.
The outsourcing market continues to grow at an unbelievable rate while empowering industries.
New capabilities, like cloud computing, software-as-a-service, mobile device web access, and data center virtualization and consolidation, are significantly changing both the possibilities and the complexities of outsourcing IT functions.
In 2020, companies will aim at implementing new technologies to engage users thereby optimizing internal processes. Most business leaders today believe that it’s their responsibility to the organization to seek savings by finding outsourcing providers who can offer excellent and specialized IT services at lower costs.
Currently, there are 37% of companies that outsource a single process. 24% of companies outsource companies to boost efficiency and 18% say their goal is to receive expertise.
Statistics show that, in fact, the market size of the outsourcing industry in the US in 2020 is $132.9 billion and it is going to grow by 1.6% the same year.
Factors To Consider When Making Right Outsourcing Decision
Before you decide on which outsourcing company to partner with, read about these vital factors that can help you in taking the right outsourcing decision.
Read also: Should You Outsource Your Startup Product?
One of the reasons behind making an outsourcing decision that business entrepreneurs laid more focus on is the cost required to carry out the same tasks within the organization. The cost incurred in hiring employees, buying IT resources, workspace could get a bit heavy to handle financially and outsourcing is the only option left with us.
Also, if outsourcing tasks are not organized smartly, this could result in costlier as compared to the in-house operations. Thus, you need to analyze and examine thoroughly how much are you investing in hiring an outsource team versus the cost involved in hiring in-house employees, IT infrastructure expenses, and others. After all, outsourcing should be a profitable decision.
The pace of delivering work
Not only investment but the duration of making the product ready to market also holds great importance. For instance, if an outsourcing company fails to meet the deadlines, it can lead to major bottlenecks. That alone will nullify any cost-saving benefits that you had anticipated while hiring them.
If an outsourcing company gives you the outsourcing services at a low cost but takes double the expected time, then you might not have made the right decision. You need to ensure that the outsourcing company adheres to the promised quality and timeliness. One of the ways to do this is by making your queries clear beforehand.
Inspect the technology being used
The IT resources and technology play an important role in gaining efficiency and high speed of completing tasks. It applied to your outsourcing partners as well. The technology and resources used are to considered prior to when you choose to outsource.
Ask your outsourcing partner about the tools and technologies they are going to use for your project and how capable are they of handling all your outsourcing needs?
Are they using the latest technologies or the older versions?
It’s wise to clear these questions before making the outsourcing decision.
Coordination between teams
Seamless Communication between onshore and offshore teams plays a key role when developing a software product ready to market.
Imagine how chaotic and hampered the workflow would get if your outsourcing team works during daytime and your in-house team operates at night or vice versa.
In such a case, the coordination between teams gets cumbersome.
The time zone, cultural environment, language are the factors that need to be considered first before managing and outsourcing development teams.
Your outsourcing provider should be competent enough to understand your requirements in clear terms so that there are no delays in the completion of your project.
The Service Level Agreement
The SLA is the most integral document in an outsourcing partnership. Make sure that everything is clearly written out, with no room for confusion in any detail. Ensure that there is no ambiguity about the level of quality required for the services being offered.
Outsourcing your business operations to third-party involves high-risk factors as the outsourcing partner takes complete ownership of the project. Before making the right outsourcing decision, you must go through the entire details of the outsourcing company and hire the best experience and expert team that empowers your business and validate the risk involved.
Compare various outsource providers
One factor to consider while thinking about the amount of investment is whether the team or individual you are hiring is asking for the best money in the market.
And of course, you cannot compromise on the quality and reliability in order to save a little. But still, there are chances you could find the same and credibility and efficiency at a comparatively lower cost.
The level of flexibility
Evaluate if the vendor you have chosen is rigid or flexible in their approach. It is important for the vendor to be flexible enough to understand your concerns and offer possible solutions.
Before making an outsourcing decision, make sure to visit the outsource provider place. Checking on the infrastructure, back-ups for downtime, safeguards, and the availability of the staff will give you a fair idea about the reliability of the provider. Make sure to not completely place your trust in everything that is presented on paper. Personally visit the site to check is everything is also present on the floor.
I hope the above key factors may help you make the right outsourcing decision and also to get you the best outsource partner.
Success Stories Of Big Companies
Some big and popular companies won’t be here today without outsourcing. As this topic continues to be on the minds of project managers and CTOs, let’s explore some success stories.
Before WhatsApp was purchased by Facebook for $19 billion, it was a small enterprise with total of 5 part-time employees and 30 full-time employees working. Most of the work was done by developers located in Russia with low costs.
However, as the company scaled, some of the Russian developers were relocated to Mountain View, California. If they didn’t choose the outsourcing approach, the most popular chat app might not have gotten off the ground or made huge profits.
Most of us think of outsourcing to countries like India or China from the U.S. or Western Europe. But, that’s not always the case!
The Chinese multinational e-commerce company, Alibaba used to outsource IT development to the U.S. This is because the skills and experience required to build the world’s largest online marketplace were scarce in China but easily available in North America.
The outsourcing approach helped the company innovate even with government restrictions and fierce competition from eBay.
Procter & Gamble (P&G)
Outsourcing not just limited to startups or small companies, it can also be the best solution for giant product companies like P&G.
Product-based companies always have to perform a step ahead in a rapidly changing marketplace. To maintain a competitive advantage, you have to be the first to come out with a brilliant product idea.
After managing everything in-house for years, P&G decided one day to outsource some research and development activities to accelerate innovation.
The outsourcing results shocked everyone as innovation and productivity were boosted by as much as 60%. Also, the revenue generated from over 400 new products also exceeded $10 billion. Currently, about half P&G innovation comes from collaborating with several outsourcing partners globally.
Searchable Log of All Conversation and Knowledge (Slack)
When Slack was first started, it was an internal team collaboration tool that was used by a small team. However, when the company started thinking about releasing it externally, they hired the design firm MetaLab to rework the company’s logo, website, and app.
This approach paid off as the company earned $221 million last year and had over $900 million in cash. Currently, Slack has around three million paying customers and about eight million users overall.
Today, the company is valued at about $10 billion.
The ability to outsource IT processes across the spectrum, from end-user support functions to the IT infrastructure itself, has created a new world of possibilities for competitive advantage and leveled the playing field for both start-ups and established multinational companies.
Ignoring the benefits of outsourcing like cost savings, enhanced expertise, and flexible sourcing may put CIOs at risk of falling behind financially and of stumbling into a competitive situation.
Rushing into the outsourcing decision without clear goals can result in misaligned expectations, increased management overhead. So, to avoid putting your project at risk considers the factors affecting your product outsourcing and make the right outsourcing decision.