Outsourcing has been in the foreground of the IT industry for more than 20 years. In the early days, outsourcing was mainly about accessing cheap labor resources for procedural tasks like call centers and software development. For this reason, outsourcing was almost synonymous to offshoring of IT tasks. Over the years, the strategic target of outsourcing activities was shifted from cost-effectiveness to access to global talent. Specifically, outsourcing became one of the best ways for assigning tasks to experienced and competent professionals from all over the world. This gave a significant boost to the strategic importance of outsourcing, which become a vehicle for attracting high caliber human resources in flexible and cost-effective ways.
Outsourcing has always been an appealing option for Small and Medium Businesses (SMBs) given that they tend to operate under tight budget constraints. Furthermore, SMBs are quite handicapped against larger enterprises, when it comes to employing skillful and talented individuals with knowledge in high-tech areas.
In order to take advantage of the benefits of outsourcing, enterprises (including SMBs) should pay attention in the way they manage the outsourcing process. This includes the steps of identifying and documenting the outsourcing requirements, but also of selecting the proper vendor. It also entails the proper management of the selected outsourcing vendor.
Understanding the Buyer’s Journey
The management of the outsourcing process is driven by the so-called “buyer’s journey” i.e. the concrete steps that a company must undertake in order to identify and hire an outsourcing company. These steps include:
- Identification of the business drivers: There is always an underlying business need that motivates the outsourcing process. One of the main reasons why companies outsource is their need to increase their capacity in a cost-effective way. This is for example the outsourcing case for outbound marketing activities such as activities associated with the execution of IT-based marketing campaigns. In other cases, companies outsource in order to gain access to resources and expertise that they do not possess in house. Consider for example, IT companies that need to analyze data based on Artificial Intelligence (AI) algorithms, yet they lack in-house data science In all cases, the identification of the business driver is accompanied by a detailed documentation of business requirements about the outsourcing project.
- Vendor research and analysis: With a set of business requirements at hand, companies can start doing their research about vendors that can meet these requirements. The research process should start with a long list of potential vendors. This list will be gradually narrowed down following a closer look on each vendor’s background, reputation and specific capabilities. In general, the vendor research step should seek to identify vendors that have a track record of being reliable, while providing services with a good value for money.
- Request for Quotations and Vendor Selection: The next step of the buyer’s journey involves asking the short-listed vendors for a proposal or a quotation of their services. The process is commonly known as Request for Proposal (RFP) or Request for Quotation (RFQ). As part of this process, interested vendors will submit an offer with full technical and financial details about the outsourcing services that they are asked to provide. Offers will also comprise information about the background and track record of vendors, including information about their financial capacity. With a number of offers at hand, the buyer enterprise can proceed to the vendor selection step. This entails weighting and auditing the offers against some evaluation criteria. The latter are specified based on the business requirements and are likely to combine both economic and technical factors.
- Contracting the Successful Vendor: The selected vendor should be contracted, following a negotiation process. The latter should strive at reflecting the business requirements and business priorities of the buyer in the contract, in a way that commits the vendor to abide by them. The contract will always contain technical, financial and legal terms. Hence it should be audited by some technical and legal experts prior to its final signature.
- Contract Management: The contract signature is not the end, but rather the beginning of a new phase where the outsourcing agreement must be monitored and managed. This requires close and effective communications with the vendor. The latter communications might imply extra “hidden” costs that should be considered when planning the outsourcing agreement.
Recent Trends in Outsourcing
For several years, the outsourcing market is evolving and growing in size. Nowadays, this evolution is driven by some technological and business trends, including:
- The rise of Big Data and AI: An ever-increasing number of enterprises are adopting data-driven strategies. This means that they strive to leverage large volumes of data for a variety of heterogeneous sources (typically Big Data) in order to optimize their business processes and their decision making. This requires a pool of data science expertise in all functional areas of an enterprise, including production, marketing, sales and human resources. However, there a significant talent gap in data science, Big Data analytics and AI for business processes. This creates fertile ground for outsourcing Big Data activities, which is one of the fastest growing segments of IT outsourcing.
- Automation and Industry4.0: We are living in the era of the fourth industrial revolution, where machines are taking over laborious tasks. Many enterprises are therefore outsourcing tasks to “robotic” applications and services, rather than to low cost employees. Such robotic applications are offered over cloud-based infrastructures based on pay-as-you-go modalities (e.g., AI as a Service, Machine Learning as a Service), which represent another form of IT outsourcing.
- Regulatory Complexity and Compliance: Many enterprises are nowadays faced with a complex regulatory landscape, which increases the sophistication and cost of their operations. To this end, they are increasingly seeking ways of outsourcing regulatory compliance tasks, such are tasks associated with cyber-security and data protection in line with applicable laws and regulations.
- Partnerships with outsourcing companies: In many cases companies want to take advantage of the benefits of outsourcing, while keeping their operations transparent to their customers and collaborators. In this direction, they are not keen on have “black-box” third-party processes. As a remedy, they are considering partnerships with their outsourcing vendors, as a means of increasing the transparency of their operations and business relationships. We therefore expect to see more partnerships between enterprises and their outsourcing vendors in the years to come.
Overall, outsourcing is nowadays playing an increasingly important role in business operations and is one of the factors that shapes the global IT industry. It is also evolving in-line with technological and business trends. Enterprises have better monitor and understand these trends in order to optimize their outsourcing strategy and to maximize the benefits of their outsourcing agreements.