Leveraging IT Outsourcing for Efficiency and Productivity
Today’s fast-paced and highly competitive business environment requires resilient IT solutions. Consequently, an increasing number of companies are turning to IT outsourcing to boost productivity and efficiency. The COVID-19 pandemic has only accelerated this trend, with businesses worldwide now seeking reliable third-party IT providers to assist them in their digital transformation initiatives.
According to McKinsey’s analysis, among the 53 business-process-outsourcing deals closed between 2016 and 2020, around 25% included at least one digital component, such as social media, mobile applications, analytics, automation, cloud, or IoT. Interestingly, the number of such deals has almost doubled over the past five years, presenting an excellent opportunity for the outsourcing industry in contrast to the industry’s single-digit growth rates. The Total Contract Value (TCV) analysis shows a similar trend. Digital services grew from 30% to 70% of the TCV over the five years from 2016 to 2020, and the number of new deals with a digital component has steadily increased by nearly 50%.
There are multiple reasons why companies are rapidly incorporating digital solutions into their BPM deals. Customer demand for digital products and services has grown exponentially, and the worldwide adoption of cloud technologies across industries has risen. An analysis from 2020 indicated that cloud-enabled deals peaked at 67% of TCV in the private sector and 63% in the public sector. However, outsourcing is an ongoing endeavor, and companies must fully understand the contributing factors that determine the success of IT processes for it to work. McKinsey report exhibits that there are four key success factors for digital outsourcing in today’s business environment:
1) A focus on transforming operations through digital – The traditional approach to outsourcing was pretty straightforward, only focusing on basic operational efficiencies. Companies handed off a set of well-defined tasks, and providers were paid based on a straight rate for time and materials. Yet, a new model has emerged that uses digitalization to transform operations. Providers now take on more complex processes and are paid based on the outcomes they deliver and their technology solutions, including NLP, robotic process automation, and AI.
2) Shared incentives aligned to innovation – Because these technologies and applications are still evolving, the potential value they can unlock is also in flux. As a result, companies can structure deals to incentivize innovation through the full contract term.
3) Redesigning digital journeys end to end – As companies leverage digital technologies to redesign their processes, outsourcing only a small process fragment is no longer sufficient to achieve significant improvements. To achieve maximum impact, the provider must often take ownership of and transform the entire end-to-end process through optimization, digitization, automation, and the elimination of manual work.
4) Joint accountability for digital transformation and adoption– Instead of the distant and non-collaborative approach of the past, digital sourcing now requires a shared governance structure between companies and providers. Specialized teams, consisting of representatives from both organizations, are responsible for creating and overseeing a detailed set of KPIs that include customer experience.
When we examine the post-pandemic era, we observe that IT outsourcing has continued to evolve similarly to trends observed during the pandemic. An increasing number of organizations now prefer outsourcing IT services due to changes in the market, working conditions, global demand, and technology, as in-house IT solutions are no longer sufficient to meet industry needs. These shifts in a highly dynamic business landscape are inevitable and should be taken into serious consideration by companies for the future.
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5 major discontinuities are shaping the future of global outsourcing 1.Tech-native companies are blurring boundaries to create new revenue pools, predicted to drive nearly 75% of enterprise spend by 2030. 2.The rate of technological change is accelerating, with technology cycles expected to shrink by 50% over the next decade, further reducing the time to market new platforms and service offerings. 3.As enterprises streamline and standardize their processes, “as-a-service” offerings could emerge as a central driver of global sourcing. 4.Digitized and hybrid remote-based ways of working may continue to be an integral part of the delivery model. 5.The scale and scope of global sourcing deals are rapidly evolving. The share of the deal market claimed by large deals (those with a total contract value of greater than $500 million) has grown by more than 40% over the last five years, while the share claimed by small deals (total contract value of less than $50 million) has shrunk by 16%. Large deals increasingly become multitower and transformation-focused, while small deals focus on specialized point solutions. Source: McKinsey |
1) Access to Specialized Skills
Today’s businesses usually find it quite challenging to reach the top-of-the-line experts since they are not abundant, and IT firms tend to snap up the best talent. Training experts can take up considerable time and resources, which many companies can’t afford. One of the primary advantages of IT outsourcing is accessing specialists with extensive knowledge and skills in various technologies and solutions instantly. Skills, knowledge, and experience are the pillars for boosting productivity and agility, as well as maintaining higher quality standards for enterprises. That is why outsourcing can be very impactful for companies focused on digital transformation. By outsourcing expertise, enterprises can seamlessly improve the efficiency of their IT systems and solve problems faster during a crisis. Outsourcing specialists also allow companies to allocate their resources more effectively to focus on their core business practices without having additional IT concerns. Experienced specialists ensure that IT systems function properly and make necessary adjustments for operational excellence. Specialists also use advanced tools to provide above-and-beyond services. For instance, some companies in the mineral industry outsource technology specialists to track and increase productivity in their processing plants using the IoT. Some of these then aggregate the data they gather from companies across sectors to build a platform with immense data and algorithms that customers can purchase.*2) Cost Savings
One way to significantly reduce costs in a company is by outsourcing its IT needs. This approach offers several benefits, the most notable of which is eliminating labor costs. Hiring IT personnel can be challenging for HR, and it involves additional expenses and time for employee training. Maintaining a full-time on-site IT team is also quite expensive, especially for companies that do not require their services at all times. Additionally, IT teams take up physical space and require hardware, office supplies, and equipment, which can considerably increase operational costs. Outsourcing IT obliterates these issues: Companies can waive all hardware, labor, maintenance, and utility expenses affiliated with IT management. IT companies provide a range of payment options, making it possible for their clients to choose the best plan that fits them. Payment flexibility enables companies to make payments depending on usage, eliminating unnecessary IT expenditures. Furthermore, 3rdy party IT providers generally keep up with the latest advancements in technology to maintain a competitive advantage against competitors. In other words, by outsourcing IT services, companies can benefit from advanced technology without making bold hardware and software investments, further contributing to cost reduction efforts. Since IT providers generally serve multiple clients, they can achieve economies of scale, resulting in lower per-unit costs for services. This cost-sharing benefits all customers, as they can access specialized IT expertise without having to bear the entire financial burden.
3) Agility and Scalability
Outsourcing enables organizations to scale up or down their IT resources according to the fluctuation in demand, providing companies additional flexibility and agility during times of hardship. Organizations can speed up their product development, testing, and production processes, enabling them to reduce overall time-to-market. Daily operations and milestones can be completed much faster, which enhances the company’s agility and maintains a competitive advantage. When using third-party IT providers for a project, their prior experience and knowledge from past projects can help speed up the implementation phase. This accumulation of experience enables IT companies to assess the situation efficiently, take prompt measures, and assign the appropriate IT personnel for the tasks at hand. Such efforts improve operational speed and efficacy, making operations run more smoothly. One advantage of outsourcing is that it is not limited by location. Companies can easily access expertise worldwide, increasing their agility and scalability. They can work with providers in regions with different economic conditions or technological trends depending on their business needs. This also allows for easy expansion, eliminating the challenges caused by setting up on-prem IT systems in a new location.4) Risk Mitigation
By outsourcing IT services, companies can dodge IT-related risks, creating a low-risk environment for their IT projects. With proactive monitoring and maintenance, IT service providers can address potential threats before they occur so companies can mitigate risks effectively. Adhering to industry rules and regulations is also critical in mitigating risks, as these can vary significantly depending on the country of operation. IT companies place great emphasis on regulatory compliance to ensure their IT processes comply with the law and avoid penalties. Many IT companies have disaster recovery plans in place, including data loss. These plans involve using multiple servers to ensure that data can be quickly and easily recovered from different locations around the globe, allowing organizations to manage operational risk and get back on their feet in no time. The expertise of IT service providers also helps companies minimize damage in times of crisis, such as during a security breach, hardware failure, or operational disruption. As previously mentioned, outsourcing IT enables companies to focus on core competencies without the added burden of handling IT-related issues. A clear focus on business objectives lowers affiliated business risks, allowing companies to allocate time, labor, and resources efficiently.
5) Quality Assurance
Quality assurance is one of the main reasons why companies consider outsourcing IT services. In many industries, the overall quality of products and services depends on the quality of IT management. 3rd party providers enable industry leaders to evaluate the quality from different angles, providing a broader perspective. IT companies offer comprehensive testing capabilities involving different business domains, whether it’s performance, functionality, or security. IT firms can evaluate quality standards independently and run unbiased tests, which helps ensure quality standards. Such tests can be highly detailed and all-encompassing since IT firms are always in pursuit of cutting-edge technologies – like cloud systems, robotic process automation, Big Data, AI, and ML- to stay competitive in the sector. Therefore, outsourcing IT makes it possible for companies to instantly access advanced tools to maintain quality. IT providers also perpetually improve IT processes based on feedback and KPIs. Continuous improvements ensure the efficiency and effectiveness of IT systems, allowing companies to reveal the weak spots in their operations.6) Dedicated Support
Technical support is vital in today’s highly competitive landscape, mainly when a company relies on a third party for effective IT processes. IT service providers understand this necessity and typically have specialized IT teams for each client, ensuring their IT requirements are met. These teams are made up of skilled IT experts available round the clock to provide technical support per the SLAs. Most IT companies offer services globally, enabling them to assist clients in different time zones and resolve crucial IT problems even during off-hours or weekends. With a dedicated team available at all times, the client’s IT environment remains familiar and consistent. Some IT firms use a “follow-the-sun” model, where support teams are placed strategically in various geographical areas. This approach ensures uninterrupted support as one team finishes their workday and another team takes over in a different time zone. Likewise, IT service professionals can instantly access company IT systems to monitor operations, provide additional feedback, and intervene when an IT-related issue occurs.⭐⭐⭐
Outsourcing IT services has dramatically developed and advanced to keep up with the constantly changing business environment and technological progress. It is now seen as a strategic step companies take to remain competitive, flexible, and efficient. The benefits of IT outsourcing, including access to specialized expertise, reduced costs, flexibility, risk management, quality assurance, and personalized support, have become essential for businesses aiming to excel in IT management and lead digital transformation. With 10+ years of experience, we have worked alongside businesses from various sectors to develop, set up, and implement IT solutions and understand potential pitfalls. We actively engage to create a solution that is “bought into” throughout the organization, taking personal responsibility for the success of our projects. Our team of dedicated Project Managers and skilled engineers provide expert guidance and 24/7 email and phone support and adhere strictly to the service standards and uptime outlined in the SLA. If you would like to know more about how Kartaca can add value to your business and your IT management processes, please check this page and contact us.Kartaca is a Premier Partner for Google Cloud in the Sell and Service Engagement Models with “Cloud Migration” and “Data Analytics” specializations.
TL;DR
What are the challenges that businesses face when trying to secure top IT experts, and how does IT outsourcing help overcome these challenges?
Businesses often struggle to secure top IT experts due to their scarcity and competition from IT firms. IT outsourcing helps overcome these challenges by providing immediate access to specialists with extensive knowledge and skills in various technologies and solutions.
How can outsourcing IT help reduce costs for companies?
Outsourcing IT can reduce costs by eliminating labor costs, avoiding expenses related to maintaining an on-site IT team, and offering flexible payment options based on usage. It also allows companies to benefit from advanced technology without major hardware and software investments.
How does outsourcing contribute to agility and scalability for organizations?
Outsourcing enables organizations to scale their IT resources according to demand, speeding up product development and daily operations. It provides flexibility by allowing companies to access expertise worldwide and work with providers in different regions, enhancing agility and scalability.
How does outsourcing IT help in risk mitigation?
Outsourcing IT services allows companies to mitigate risks through proactive monitoring and maintenance, adherence to industry regulations, disaster recovery plans, and expertise in handling crises such as security breaches or hardware failures. It also lets companies focus on their core competencies, reducing affiliated business risks.
What benefits does outsourcing IT bring to quality assurance?
Outsourcing IT services enables companies to evaluate quality from various angles, offering comprehensive testing capabilities in performance, functionality, and security. IT providers continuously improve processes, ensuring the efficiency and effectiveness of IT systems, and providing access to advanced tools for quality maintenance.
Author: Cem Cetinguc
Published on: Feb 5, 2024
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