Opinion

Now is the time to rethink IT outsourcing

What’s the next move for IT service providers to adapt and thrive in the post-pandemic context? Companies will have to move away from the model of providing cheap outsourcing services or move out of this activity field altogether.

Many businesses have long viewed Eastern European countries as an opportunity for outsourcing some of their activities.

The category of activities that are good outsourcing candidates varies from manufacturing, customer support, business processes to information technology, and others.



But when it comes to outsourcing IT-related activities, there’s an incompatibility between the low-cost services clients expect and the complexity of the activities service providers are supposed to deliver. They require a highly skilled workforce that has no mobility limits within the EU. Service providers look for ways out of this paradox, and the options are as complex as the problem itself.

Before the pandemic, I was hopeful that low costs were no longer the main focus in service contract negotiations.

But since 2020 the main driver behind a decision to outsource has again been cost reduction, according to Deloitte’s Global Outsourcing Survey 2020. This exposes the threat of commoditisation of IT outsourcing services, which is any service provider’s nightmare.

For example, it’s very easy for Eastern European employees in the IT field to move to any country in the EU and get a job there. They remain in their home countries for now and contribute to custom software development for many businesses worldwide because the “income to cost of living” ratio is better for them there than in developed countries.

The gap between the cost of living in emerging and developed economies is slowly converging, so service providers need to constantly increase salaries to maintain a satisfying “income to cost of living” ratio and prevent losing valuable employees.

Remote work: The new default

On top of this, remote work is the new default. Within the EU, IT professionals don’t even need to move anywhere for higher wages; they can have the same status as any other employee working remotely. Moreover, any low-skill work that might be done for a lower salary is soon likely to be done by an automated script or process, if this is not happening already.

IT service providers are therefore under constant pressure to solve this commoditisation problem. While some businesses appear to continue to focus on outsourcing, they are also investing in developing their own products and IP.

Some businesses organise events and competitions in which participants pitch their product ideas and they pick the ones that they want to invest in. However, these are strategies for getting out of the information technology outsourcing business rather than addressing its challenges.

As long as outsourcing is cost-driven, the commoditisation threat remains, and being seen as an outsourcing company is a stigma. But outsourcing IT services can be so much more. Think about lawyers that take care of your contracts or consider the financial experts that help you keep track of your finances.

Nobody signs a contract with business consulting companies based only on who offers the lowest price. Their clients look for specialists they can trust and partner with to solve complex problems. All these activities are called professional services. They are highly skilled activities, and no automation will replace these experts (at least not anytime soon).

So how can you, as an IT service provider, use this model to overcome the outsourcing stigma, win the trust of your clients through your expertise, and position yourselves as partners in the contractual relationship? Here are some questions (and answers) that might help you get on the right track:

What expertise can you offer? Are you mastering a technology or an activity?

The process of identifying and phrasing the unique selling point for your company may seem only slightly important. Still, it can define the path you want to take. List five activities that you can do really well, that you think you can master. Do you have the best team in developing applications in Unity, for example? Your business can become the expert in educational games or driving simulators created in Unity. Go through this top five and choose one with the most chances to get you a contract with a partner who trusts you.

What expertise is in high demand, and there are only a few players on the market?

Trying to come up with a list that answers this question may generate a collection of buzzwords, like AI, blockchain, IOT etc., but these are increasingly embraced concepts, so it’s time to contemplate if you can acquire the skills fast enough to have a competitive advantage.

How can you create and support an ecosystem?

Partner with other experts and consultants to offer interconnected services. For example, a company focused mainly on programming could partner with a company with testing experts.

Now is the best moment to switch from low-cost services to strong expertise and highly skilled work. The current context has some surprising opportunities that you can tap into.

The need for digitalisation is soaring. The Covid-19 pandemic revealed in a crushing way the importance and urgency of digitalisation. I’m expecting to see a rise in custom software development requests. Once you understand your expertise and selling points, make sure you are visible, and potential clients can easily request an offer if you haven’t contacted them first.

The online model is now proven

New educational paradigms and improved educational offers have appeared. The past year has proven that practical workshops and courses can be successfully delivered online. So you have many educational providers to choose from to help you continuously build your expertise. We are seeing new educational paradigms that are contributing to an impressive online educational offer. The rise of several educational models like Massive Open Online Courses (MOOC) by Coursera, online Learning Marketplaces by Udemy, or online specialised technical courses makes it easy to add training to all team members as part of their benefits package. We live in an age of endless educational opportunities that truly set the ground for continuous learning.

Remote work culture opens up collaboration options that were impossible not more than two years ago. The main argument for excluding any external team addition to a project was that the collaboration and thus the outcome is better if team members all work together in the same location. After more than a year of remote work, people are starting to get used to it, understand its challenges and find ways to overcome them. This opens up a new category of clients that might not have any previous experience with service providers and no low-cost services bias.

Some potential clients will continue to contact you and have only the pricing as the selection criterion and how fast you can ramp up a large team because they see the headquarters being located in a country traditionally known for services offered at lower prices. Don’t let your geographical location define your business in ways that are not beneficial. In the past year, we learnt that geography does not protect you, but more importantly, we learnt it shouldn’t limit you either.


Photo: unsplash.com.


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About the author

Oana Casapu

Oana Casapu

Oana Casapu is managing partner at Altom Consulting and a software testing course instructor at BBST®.

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