By 2022, 80% of revenue growth will depend on an organization’s digital capabilities and operations.
Rapidly advancing technology capabilities are no longer just about the IT department – they are now key enablers of business differentiation and growth.
We survive on digital. To pause would be considered an extinction event for most companies. The people who fuel those initiatives have never been in higher demand, or in shorter supply. In the past four years, the number of businesses reporting disruption due to a lack of IT professionals has almost quadrupled.
Yet, many IT service models are fossils of the past; plug-and-play models that approach outsourcing as a means to fill gaps.
But the days of outsourcing to fill seats and drive non-mission-critical initiatives are over. In this post, we’ll talk about a new era of outsourcing: the hybrid model. We’ll explain how outsourcing has evolved — and why it needed to — and share how businesses are using this new model to accelerate growth and protect market position.
The Growing Need for – and Lack of – IT Talent
The need is now. Tech skills shortages hit an all-time high in 2019, with 67% of organizations struggling to find the right talent. At the same time, the global talent pool is now shallower than ever; recent legislation has suspended H-1B and L-1 visas – what US organizations depend on to hire technical talent they cannot find onshore – for the remainder of 2020.
Because this suspension also prevents offshore IT providers from working onsite, nearshoring will become even more attractive to organizations seeking skilled talent: the recently ratified U.S.-Mexico-Canada (USMCA) trade pact enables visa-free travel from Mexico.
The following table breaks down the impact felt by companies and leaders:
|75% currently experiencing visible business disruption due to IT skills gaps, up from 20% in 2016||29% have the talent they need to meet current performance requirements||A worldwide talent deficit of 4.3 million tech workers|
|67% report lack of tech skills is holding back their ability to support transformation||24% can quickly hire the talent they need with their current resources and processes||$162.25 billion in unrealized annual revenue due to tech sector skills shortages in the US|
|63% consider the talent shortage a key concern|
Like so many other facets of technology, outsourcing takes many different forms and means different things to different people. Before we explore where the industry is headed and what that means for your talent strategy, let’s take a look back at how outsourcing began.
The High Price of Low-Cost Offshoring
In the 1980s, outsourcing was driven by the need to save costs. Companies outsourced low-thought, repeatable tasks and stayed away from core competencies. Four decades later, some offshore models still follow that same approach: employing armies of people to simply “do the work,” focusing on individual tasks over operational and financial and business outcomes.
IT leaders in the past weren’t as concerned about innovation, and did not talk about speed. Today, everything is about speed and innovation.
|IT leaders who are most disappointed with the level of innovation provided by their IT service providers originally engaged in outsourcing to cut costs.|
Significant time zone differences inhibit real-time collaboration and project handoffs; team members never (or rarely) meet in person. This causes project lag, increased cost of ownership, and communication breakdowns.
In 2019, 65% of US IT decision-makers said the lack of IP protection was the top challenge of offshoring. Intellectual property and data protection is not guaranteed when offshoring, and there is negligible structure to provide US firms protection if their property is stolen.
Nearshoring: Bringing IT Closer (Geographically and Culturally) To Home
Cost is by no means the only factor to consider when outsourcing. Nearshoring — outsourcing to Latin American countries — balances the cost savings of offshoring with travel proximity. With the ability to have people on site quickly as needed, nearshoring offers a more collaborative and hands-on approach to service delivery than offshore models. Additional benefits include language proficiency, shared time zones, and cultural affinity, while strong IP protection and data security standards help mitigate risk.
Driven by new motives and new technologies, outsourcing is entering an era that goes beyond location-based approaches. In this new era, which we discuss below, expect to see outsourcing yield more cost savings per project as service providers take a consultative approach and integrate cloud and automation into their solutions.
A New Era of Outsourcing: From Low-Value Activities to Higher Value Creation
As leaders pursue their digital strategies, many are looking to IT service providers as strategic partners to accelerate change. The vendor’s new role is driven by their ability to consult and service, regardless of their location.
In response, outsourcing models that focus on labor arbitrage and offshoring are being replaced by value-add models that offer an outcome-based approach, leveraging a hybrid of onsite, onshore, and nearshore talent. Whereas past models used talent to fill gaps, hybrid models cultivate talent to learn the business in a problem-solving culture. The hybrid model offers the advantages of proximity and partnership including:
- Cultural alignment
- Next-generation skills
- Active problem solving
- Lower turnover
- Faster speed to market
- Predictable, real-time deployments
- Increased throughput
- Reduced costs and operational risk
Leveraging a Hybrid Model to Drive Your Business Forward
You’re likely not going to solve the skills gap dilemma, but you can work with a strategic partner that will take a consultative approach to accelerating growth and protecting market position. Such a partner will focus on your business outcomes and have the following common. They:
1. Contribute to your strategic goals
Instead of just keeping IT running, they provide some vision about where IT is going and prioritize projects that will drive transformation and deliver on key business initiatives. For example, they’ll generate a digital transformation roadmap from a 5-week assessment of customer service, order processing, and fulfillment.
2. Consistently add value
In order to maximize your success, they’re always looking for opportunities to add value – regardless of project scope. Instead of just focusing on the deliverables, they identify areas that need improvement, build and implement a solution. For example, implementing an automation suite that increases accuracy and boosts manufacturing efficiencies by 80%.
3. Are cost-effective
Expect added cost savings in the form of compounding solutions. As they tie together your digital transformation systems (integrate systems, sunset legacy technology, incorporate data migration, automate managed service functions), you benefit from process efficiencies and big-picture impacts:
- Accelerating growth
- Protecting your market position
- Adopting faster methods to work
- Introducing more predictive models
4. Push back
The true litmus test of a strategic partner comes from their experience in helping customers avoid costly mistakes. For example, in the case of system integrations, they will know when it makes sense to leverage existing system components instead of retooling an entire platform (and, for example, avoid a $4.5 million expense).
A one-size-fits-all approach to service delivery will not help you meet your business goals. We’ve found that a rounded partnership model – supporting organizations in their broader mission and offering strategic support – moves digital transformation agendas forward while systematically driving costs out of your business model.
 “Gartner Survey Finds Talent Shortage Considered A Top Risk Among Executives,” Retrieved June 23, 2020.