05 Jun A revolution in the approach to outsourcing – now it is done differently
The last weeks have been marked by negative changes and drastic business moves – due to the pandemic, mass redundancies, shifts and limiting the costs of conducting business have become a reality. Although the situation in the IT industry is in many aspects more stable, experts predict that also here inevitable changes can be expected.
Although in February 2020 IDC predicted an increase in the IT global market by as much as 4.3% per annum, the March forecasts suggest that at the end of 2020 it will fall to 1.3% at constant exchange rates. All due to the difficult situation of companies that, in the face of limited budgets, are looking for alternatives in the area of employment as well as cost optimisation allowing for survival and support in the achievement of further business goals.
Whereas, as pointed out by experts, in the face of global coronavirus-related problems, some changes may take a surprising turn. Although, at present, most sectors of the economy are in a very difficult situation, it may turn out that the experience related to the epidemic will be a motivation for a large number of companies to implement measures to facilitate functioning in a crisis situation. This can be perceived as a chance for a considerable development of automation and robotisation areas, and, as is confirmed in the Antal survey, for the increase in the popularity of outsourcing services, primarily in the IT area.
Companies are changing their approach to outsourcing
Everything sprouted already in 2018, when companies began to change their perception of the role of external services in business. Previously, the main motivation when using outsourcing was the intention to reduce costs and shift the company resources for other purposes. Today, this approach is revolutionising, because according to the Deloitte report, entrepreneurs stopped looking at outsourcing only in terms of back-office support, but began to treat it as a way to gain market advantage – by transferring knowledge and technology between the client and the service provider. And while cost optimisation is still an extremely important criterion, it has ceased to be the key criterion. This tendency seems to be confirmed by the conclusions of the GSA (Global Sourcing Association) report on trends in outsourcing, according to which today decision-makers focus much more on the overall value for the organisation, and not just on cost reduction. Therefore, the main goal of outsourcing is to support the client in gaining a competitive advantage by changing the way of operation and implementing actions that increase the level of flexibility, efficiency and effectiveness of the organisation.
Changes driven by the pandemic
Although changes in the outsourcing provider – client relationship have begun earlier, the current situation may accelerate their pace. – The economic stagnation caused by the coronavirus pandemic meant that the continuation of a large number of projects in their current form is called into question. Today, many companies are also struggling with a situation that they cannot suddenly, overnight, simply give up technologically advanced projects due to contracts, deadlines or external financing. Therefore, in many of them it has become necessary to control expenditures on tasks and balance company resources in order to survive the next few months – says Piotr Hanusiak, the CEO of INCAT.
He explains that currently most companies decide to completely suspend internal projects, so technical and project teams are dismissed, and modified principles are applied to HR and recruitment departments. However, this is a short-term solution – it allows to survive a difficult time, but generates a big problem when the situation with the pandemic becomes stable and project activities are resumed. Then it may turn out that there is a lack of IT specialists who will lead the project, what’s more – there are also no recruiters who could undertake to assemble the teams again. And it should be remembered that recruitment, especially in the IT industry, is exceptionally expensive, not to mention the need to match candidates to the specificity of the project and the technological stack, which is not only time-consuming, but also simply difficult. Then it may be a reasonable solution to outsource projects to an external provider, but in such a way as not to lose influence on their final shape. And that is why the cooperation models available so far seem definitely insufficient. Piotr Hanusiak believes that in order to survive the crisis caused by the pandemic, it is necessary to modernise the approach of outsourcing service providers and modify cooperation models offered previously. As he says:
– Over the past 20 years, dynamics of the IT industry development has been more than impressive. Business goals are changing, new opportunities and possibilities appear, but above all, the needs, created by the technology itself, are evolving. We participate in this process and that is why we can notice those moments when it is necessary to change common models of cooperation. Now, even more than before, it is necessary to create solutions as comprehensive and flexible as possible not only to offer the service, but above all to support clients in the process of technological changes. Therefore, modern outsourcing models must combine the advantages of classic, previously known forms, ensuring the client control over the process, while removing the burden associated with creating a software or a product. In this model, the service provider ceases to be only the service provider – his role evolves to the role of a technology partner.
Outsourcing companies will share responsibility
What distinguishes the modern model of cooperation from other forms of outsourcing is that the provider takes responsibility for the project on an equal footing with the ordering entity. In technology projects, the business risk is almost calculated in the process, because even the best planned project is not free from unforeseen situations. Where, the unforeseen situations usually take a variety of forms: from errors in the code, through unexpected costs, to staff rotations. Each such problem means additional stress, time and money, and each implemented change extends the stretched to its limits schedule of works. In modern models, the risk of the project is to rest on the shoulders of the service provider, and the customer should remain in control of the process. This sharing of responsibility will make the service provider become a partner in the project, rather than a subcontractor, although only the customer will have the full right to the software created and only he will be able to modify, develop and benefit financially from the product. Since, he will be increasingly moving away from the payment model based on the time worked and the value of the tools used, in favour of a fixed price for the project, which will allow to optimise costs and control expenses.
- Undoubtedly, a time of changes that are currently difficult to predict, is ahead of the IT industry. One can definitely say that the situation related to the epidemic within the next few months will force many entrepreneurs to change the business model and reorganise the flow of costs. And although the changing paradigm of outsourcing is a great challenge for both clients and service providers, the model of modern cooperation, in which the scope of activities and responsibility of the provider is expanding, while maintaining supervision by the client, will be increasingly popular – summarises Piotr Hanusiak.