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IT Outsourcing – The Good, The Bad, Plus Common Threats And How To Avoid Them

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92% of respondents to the popular Harvard Business Review report believe that today’s digital transformation is more important than ever before.

Therefore, it’s no surprise that IT outsourcing companies have a vital role in supporting business digital innovation and transformation.

Outsourcing is loved by many businesses, but it also has its skeptics or naysayers who prefer IT in-house. For everyone else, outsourcing lies somewhere in the middle – suitable for some activities but not all.

Read on to learn where IT outsourcing of software development has many upsides but also some challenges for businesses, including the most vital, i.e., collaborating with an external provider offshore or nearshore.

Company Culture and Digital Transformation

Since 2020, organizations have been quick with the update of emerging technologies, including

  • The Cloud and Cloud services
  • Robotics Process Automation
  • Self-Service Business Intelligence tools
  • Virtual assistants and more

However, digital transformation has a much broader role, and for the change to happen ubiquitously, the organizational culture must also change.

A more agile company

Using agile project management methodology helps businesses with the challenge of creating digital innovation while struggling to recruit in-house IT professionals. Changing the company culture, so it is based on flexibility with cross-functional teams in a hybrid model manages the staffing challenge as it is fully inclusive of third-party providers like IT Outsourcing solutions.

The alternative is companies are needing show they care more by providing more benefits focused on employee well-being to hiring in-house. Also, businesses must adapt to a flexible work model (e.g., shortened workweek). However, even with what some owners say are drastic measures, these moves are not always enough. The hybrid model and use of agile project management methodology support a lack of in-house tech experts, including external “reinforcements,” aka freelancers or third-party businesses.

The major trends in outsourcing

According to the Deloitte study “Global Shared Services and Outsourcing Survey Report 2021”, companies are most likely to opt for outsourcing in the areas of Finance, Human Resources, and Information Technology. Since 2019, there has been a 58% increase in outsourcing services. Digitization is not the only factor driving this process.

As many as 88% of companies indicated that they were looking for a way to reduce costs but also needed greater efficiency of processes (78%) and business value (63%).

IT Outsourcing: Expectations Versus Risks

The Good

Flexibility

IT outsourcing companies bring together IT talents, so they act flexibly to attract and keep the best specialists in the market. They also show flexibility when it comes to cooperation models (you can hire one specialist, several, or the entire team or commission an audit.

Organizational development

By outsourcing technology-related tasks, the enterprise can focus on the core of its business. At the same time, it grows because the area of digital innovation is addressed.

Knowledge and new tools

External suppliers have programming tools, test libraries, and skills that are often unavailable or difficult to reach.

Savings

Savings is an essential aspect in the context of price increases. Firms that opt for the outsourcing model may save on the costs of permanent recruitment, preparing equipment, workplace, training, etc.

Location diversification

Location diversification is a significant trend highlighted by the situation related to the pandemic. With the help of an external provider or several providers, you gain greater certainty of implementation and minimize the risk of failure.

Digital innovation

Digital innovation is the driving force and goal of digital transformation. IT outsourcing allows companies to achieve their goals with the support of specialized programmers, testers, business analysts, and Business Intelligence specialists. Digital innovation is becoming a new standard, and companies that want to remain competitive are aware of it.

The Bad

Outsourcing also brings certain risks, and it is worth being aware of them before we decide on such a model of IT project implementation.

Lack of experience

As the popularity of IT outsourcing services increases, so does the number of software outsourcing companies. Many inexperienced firms in a given area can offer their services at a competitive price. You should base cooperation on solid research, discussion, and analysis of the portfolio of such a company.

Inefficient cooperation models

Outsourcing works well when an external company adapts the solution to your needs – not the other way around. A thorough provider should conduct a requirement analysis and offer an optimal cooperation model, not one in which they conveniently carry out the project.

Lack of transparency

Transparency is one of the foundations for the agile implementation of IT projects, but also for building an organizational culture. The external’s company website should present the scope of its offer, completed projects, testimonials, experience, and technological stack. This is important, but in the end, people matter the most. Is their “about us” page empty? The company did not bother to introduce its employees or indicate contact persons? The warning lamp should light up here.

Mismatch with the team

The external provider may have all the necessary competencies and processes, but for some reason, the cooperation with given specialists does not work well. This risk also exists in the case of internal recruitment. Suppose you are involved in the candidate verification process or give the team a chance to comment on your choice. In that case, you can minimize the risk of including a person with undesirable qualities.

Final Words

There is no way to avoid change and digital transformation.  Plus, it’s not just the technology that’s changing either, as its very existence is forcing businesses to be more flexible with work hours and remote working. Businesses that struggle with hiring IT professionals in-house don’t need to compromise their digital innovation plans rather, they can engage IT Outsourcing partners to help them every step of the way.

 

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