Low-cost commodity outsourcing is dead, IT firms seek value-generating partnerships

Gone are the days where outsourcing equates to hiring commodity staff externally. As the world sped up its digital transformations, IT firms are more keen on harnessing partnerships that are based on value-generating strategies, structures and incentives, an International Data Center study reveals. 

Having been in a pandemic for over two years, digital transformation dictates any organization’s success. It is deemed fundamental to business survival as well. 

Companies are expected to spend $6.3 trillion on direct digital transformation investments between 2022 and 2024, according to research firm IDC’s most recent predictions.

This said, IT organizations relationships with service providers have grown more important. “IT outsourcing is no longer just a lever for faster, cheaper technology services, but a key partner in driving business growth, improved customer experiences, and competitive advantage.” an article on CIO.com tackling IDC’s study read.

And while almost all firms are racing to transform digitally, the looming talent shortage persists. Cultivating meaningful partnerships during this time when enterprises are struggling to find and keep digital talent, third parties are becoming that much more essential in providing the kinds of skills today’s enterprise IT needs.

“The IT outsourcing narrative for the last decade has been closely tied to digital transformation, but digital transformation is now horizon one. It is no longer some sci-fi that will happen in three to four years, but is simply essential for survival,” says Saurabh Gupta, president of research and advisory services at HFS Research. “The emerging phase of IT services will need to balance people, process, technology, data, and change management to really deliver on the enterprise innovation agenda.”

Here are some new practices that harness partnership-based outsourcing:

Gainsharing – An arrangement where the service provider is open to investing unique solutions for client-specific needs and is compensated through gainshare rather than unit-based pricing. 

Talent-management and accompanying costs – In this setup, outsourcers’ operational metrics, key performance indicators and governance agendas focus on total talent indicators covering business as usual/steady-state resources, flex/project resources and recruitment/retention. 

Cybersecurity paradox – Focusing and investing more on cybersecurity is a growing trend given the increased instances of cyberattacks. 

Advanced automation – With the given scarcity of talent, progressive enterprises deploy advanced automation to complement human talent.

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