IT Outsourcing Customers Cling to Cost-Savings Mindset

IT outsourcing leaders continue to focus on cost containment as outsourcing customers cling to a cost-savings mindset these days. The outsourcing community faces new pressure to meet the changing requirements of customers.

IT leaders continue focusing on cost containment with their Information Technology service deals. However, today’s business environment organizations would have to spend money on saving money. A big concern with diminishing returns is that the other top company priority is investments in innovative and new technologies like data and analytics, mobile and cloud cognitive and process automation, and at the same time beefing up security capacities.

Most companies would be challenged in reconciling the conflicting goals and would have to be creative in doing so, for instance by acquiring economies of scale through global business services. It outsourcing leaders could no longer rely on squeezing suppliers on margins to keep the expenses down. Aside from spending money to save money, they should also deliver new capabilities that their enterprises expect from IT, whether it means migrating apps to the cloud, introducing new robotic or automation capabilities or partner with IT service providers for delivering business outcomes.

The outsourcing community is facing new pressures to hasten solutions that could drive more savings. Now, we are seeing a growth in adoption of software-and-business-process-as-a-service in a lot of organizations and also a quicker adoption of robotic process automation. Furthermore, this also aligns to what is seen as increased automation demand and at the same time as cost reduction. When it comes to core IT spend, not accounting for shadow Information Technology spend in business unites, spend levels greatly vary, depending on the industry, but overall spend levels have been flat to declining for several years.

 Despite the cost savings mindset of IT outsourcing customers, outsourcing remains on the agenda of western companies for various reasons. First, massive reduction in cost are expected since there is still a considerable difference in the costs of labor between western and developing countries. Additionally, there’s a demographic development, and based on this, a foreseeable local resources shortage in the next decade. Furthermore, outsourcing organizations are moving up the value chain of a company. New areas such as outsourcing knowledge intensive processes are explored. Taking into account these developments and learning from their pitfalls and mistakes of the past, it is important to find ways for successful knowledge processes outsourcing.

For effective and successful IT outsourcing process, it is important to determine what should be outsourced. This could be achieved by having a strategic view on internal processes. The process identified four outsourcing must be reviewed to ensure the decision is commercially sensible and aligned with a business strategy. Not all processes could be outsourced, some must be kept in-house. Outsourced processes that are transactional in nature, could after some training and setup periods, could be handed over to various service provides all over the world. Yet, when outsourcing knowledge intensive processes, there is a need for more supervision and ongoing direct contact with the team. The best operations model is a combination of offsite and onsite resources. A local person could help minimize the potential of cultural misunderstanding and could translate the needs and requirements for both sides, the customer and the offshore team and would put the request in the right context.

Often, outsourcing leads to the fear of getting replaced, losing control or status. When handling more complex projects such as knowledge intensive processes, employees of a company that are highly skilled are confronted with situations that they never thought of and not ready for. Be it investment research, strategy, marketing, market research or market intelligence. These days, a big fraction of the current processes could be run by outsourcing vendors. For any outsourcing project, it is critical to invest in management change activities in clarifying the strategy of a company, the upcoming changes for the person due to the outsourcing and share company’s objectives.

It is important not to reduce change management to training and information activities: proactive change management should cover the redefinition of the internal roles and clarification of the outsourced responsibilities, the ongoing governance as well as cultural alignment of the different teams. As outsourcing deals mostly with countries with various cultures, values and religions, the rate of success of outsourcing projects will depend on the understanding of one another as well as on effective communication. To ascertain of ongoing communication, many organizations use shared virtual project rooms, video conferencing, collaboration tools and chat communications. Furthermore, it is also a good idea to set up regular phone calls, invite or meet the teams in person frequently.

Outsourcing remains an important strategic and vital tool for senior management, particularly when planning to outsource knowledge intensive processes. With the correct investment in communication and change activities, the outsourcing engagement is well-prepared for success.