So far, a majority of medium and large companies have already tried what outsourcing tastes like - from delegating simple and mundane tasks, through business process operations, up to modern outsourcing 3.0-type of cooperation, build on trust and knowledge.
The idea behind outsourcing is that every company should do what they are expert at, at the same time leaving all other tasks to firms that will do it faster, cheaper and more efficiently. Through shifting the responsibility of carrying out secondary tasks, organisations can develop business and focus on their important, core activities. This is when both the client and the outsourcing company can really spread their wings.
However, together with growing investments in technology, the approach to outsourcing is changing. Cost-cutting is not the most important business driver any more. Modern, 3.0-type of outsourcing, is rather about partnering and taking responsibilities for the processes, which are jointly managed. It is also the new way to access expert knowledge and gather a talent pool necessary for the project to succeed.
Right in front of our eyes, a new model of outsourcing is emerging, namely an informed partnership built on trust and working towards a shared goal with an outsourcing company, rather than just a shallow and temporary task delegation to an offshore location. Vendors expect that their outsourcing partners will be proactive, provide consultancy and expert knowledge and, at the same time, will have initiative, take responsibility and increase their engagement.
But it was not always this way. Let’s look at how the idea of outsourcing evolved:
First steps of business outsourcing
Outsourcing emerged as a business strategy at the end of 1980s. Companies outsourced simple (not to say dull or mundane) tasks, for which they had no internal competency, mostly to domestic providers. The most commonly delegated business areas were service desks, accounting, facility management or hardware systems. This is where the definition of outsourcing was forged, meaning ‘the strategic use of outside resources to perform activities traditionally handled by internal staff and resources’.
Then, western companies started to outsource small, non-critical chunks of projects to offshore (mostly Asian) locations. This trend was typically driven by cost cutting or headcount reduction. Later, it started to be motivated also by the lack of talents locally. Offshoring basically became the synonym of outsourcing.
Based on these experiences, the new model of Outsourcing 3.0 has emerged. In this model, companies enter into equal business partnership relations and work together in order to enable their clients’ business success.
A major new driving force in outsourcing is not cost cutting, but rather searching for an opportunity to add value to the product or service through harnessing expert knowledge and specialist skills of the partner company.
Outsourcing companies have rethought what their business is about and are now building competency centres and investing in their resources in order to support their partners best. Based on this, vendors are eager to delegate more subtle and strategic tasks, such as research and development in search for innovation and competitive advantage.
This trend will only continue to grow, as nowadays technology is no longer just the domain of IT companies, meaning that all other companies can hardly do a thing that does not involve specialist IT skills. As technology affects everything – from product design, through its creation, to distribution and sales – the time has come to reengineer business strategies and include the tech element in them.
From offshoring to nearshoring
Aside from changing the core scope of outsourcing, location is also changing. Successful companies are no longer looking for partners in remote, offshore countries, where cost savings are the biggest advantage. They prefer delegating tasks to nearshore specialists that share not only the same time zone, but also the same culture and values. This strategy guarantees easier access to high expertise, know-how and domain knowledge, thanks to a more convenient location. Moreover, modern approach not only promises higher ROI, but also balances the responsibilities between the companies, making them partners, rather than just a vendor and a service provider.
Surely, this outsourcing model will only gain momentum.
Both good and bad experiences are pushing outsourcing companies towards the new. Many organisations which tried offshore outsourcing were not exactly satisfied with the outcomes of this endeavour. That is why they are looking for other ways to develop. Others, on the contrary, were very happy with the results and thus are eager to continue this strategy and are willing to take it to the next level.
Without doubt, outsourcing 3.0 as a business strategy will only increase in popularity. Modern managers understand that two heads are always better than one. The scenario of both of them focusing on one common business problem, but with responsibilities divided by what each of them does best, is what they are striving to achieve.
Would you like to learn more about IT outsourcing services? Check out our 2020 Software Development Outsourcing Guide.