Next-gen tech outsourcing
With all the buzz around nearshoring and offshoring, technology outsourcing is big business and continues to grow. Current estimates put the global tech outsourcing value at $100bn, with predicted growth of 5-10% per annum over the next decade. Xoomworks has been in the technology business for 22 years, providing outsourcing services for 18 years. We have offices in the UK, France, Germany and development hubs in Bulgaria and Romania. We work with large and medium-sized tech-led organisations and tech start-ups.
We’ve played an active role as the outsourcing market has evolved.
Based on our experience in the sector and conversations with our clients, we’ve learnt a lot along the way:
- What does it take to outsource successfully?
- What does good look like?
- Where is outsourcing headed?
Ultimately, what we have learnt from our experience in outsourcing is that relationships matter. The way relationships have evolved over the years gives us a good indication of how the future of outsourcing – what we call ‘next-gen’ outsourcing – is likely to develop.
A brief history of outsourcing
Outsourcing is as old as the Romans. Take their specialist cleaners or fullo, for example, who took in laundry to get their togas whiter than white. It was a serious business.
Fullones were legally responsible for the clothes they were washing and subject to penalties if they used the wrong methodology, returned the wrong clothes or damaged them in any way.
Contracts were transactional, with the penalties for non-performance potentially severe – in those days probably involving some pretty hungry lions.
In modern times, outsourcing had its business heyday during the 1970s and 80s, when big businesses started to outsource back-office functions such as payroll, billing and accounting to specialist companies.
The tasks outsourced were typically process-led, transactional, low-value activities and the main driver was cost reduction. IT outsourcing was seen as an efficient solution rather than a commercial opportunity. Value creation didn’t come into it.
In modern times, outsourcing had its business heyday during the 1970s and 80s, when big businesses started to outsource back-office functions such as payroll, Contracts were usually long-term, difficult to exit, highly prescriptive and with stiff penalties for underperformance. A ‘buyer versus supplier’ relationship meant much energy was expended in avoiding blame when things went wrong, making it a zero-sum gain for both parties.
By the 1990s and 2000s, the internet had arrived. IT outsourcing moved from being a cost-saving efficiency tool to a strategic asset driving top-line contributions to the business. As cloud computing appeared, it became transformational.
Suddenly it was vital to running a business and generating exciting new start-ups.
The value of data and the development skills required has rocketed. Data is the ‘new oil’, data engineering the new wealth creation. Relationships between business and outsourcing suppliers shifted from ‘adversarial duo’ to true partnerships.
By the 1990s and 2000s, the internet had arrived. IT outsourcing moved from being a cost-saving efficiency tool to a strategic asset driving top-line contributions to the business. As cloud computing appeared, it became transformational.
Suddenly it was vital to running a business and generating exciting new start-ups.
The value of data and the development skills required has rocketed. Data is the ‘new oil’, data engineering the new wealth creation. Relationships between business and outsourcing suppliers shifted from ‘adversarial duo’ to true partnerships.
Where are we now?
Fast forward in time. Outsourcing is now much more complex as IT reaches further inside businesses and out to supply chains and customers. An increasing number of core activities are outsourced, with technology becoming the business rather than supporting it. Buyers are contracting with multiple suppliers, and new ‘best of breed’ providers are emerging. While cost is still an important aspect of outsourcing, today’s main drivers are speed, quality and consistency of service.
- Speed: Not just rapidly ramping up outsourced teams but getting new products to market quickly
- Quality: Not necessarily the highest possible quality, but what is appropriate for the activities being outsourced
- Consistency: Being able to repeat success, such as bringing a product to market successfully, again and again
The talent wars of the last 15 years have now become constant talent warfare. US labour statistics recently reported on the number of job openings in the US for ‘computer-related’ roles. (Forbes, 18 March 2021) was up 11% from 12 months ago. With a talent gap of around 1 million, technology outsourcing is once again in sharp focus.
Accelerated Change
The Covid crisis has accelerated digital transformation roadmaps. One of our global media clients has reduced its digitisation horizon from 5 years to just 12 months. New ways of working are fundamentally changing the way locations are viewed. Gone are the days when teams had to be co-located in offices. Now providers are managing locations, with virtual teams becoming the norm. Contracts are changing too. Now the emphasis is on outcomes rather than process becoming the central feature. Buyers and suppliers now share common objectives, with providers buying into companies’ visions.
SLAs continue to be critical to specific areas, such as network infrastructure and security. Still, organisations willing to be more open and not manage ‘to the contract’ are seeing the innovation that this type of relationship encourages.
Xoomworks has developed a way of working we call the Xoomworks OneTeam Approach™. We operate a fully borderless business model that involves creating blended teams that share common objectives without any distinctions between members paid by the buyer or provider.
Trust is something we start with rather than something that has to be earned. It takes a leap of faith to drop the ‘them and us’ identities and language, but our clients experience the benefits it brings to their bottom line.
As problems are shared and solutions built together, more innovation happens naturally. As one of our clients articulated, “The Xoomworks OneTeam approach is built into the DNA of our joint team and has had a far-reaching impact on how we work across the organisation. It has de-risked many of the challenges we face.”
The future of outsourcing lies in the relationship
While CTOs may differ slightly in their view, we think that technology is the relatively easy part; it’s the people that are the bigger challenge.
We have seen the bottom-line impact on a project when a partnership is proactively built to become a truly trusted relationship where both parties are completely open about the challenges they face. Teams typically perform best when the levels of trust are high.
We believe this is the future for digitally native businesses or those wishing to transform and grow with the help of a technology partner. But how to make it happen?
The future of outsourcing lies in the relationship
While CTOs may differ slightly in their view, we think that technology is the relatively easy part; it’s the people that are the bigger challenge.
We have seen the bottom-line impact on a project when a partnership is proactively built to become a truly trusted relationship where both parties are completely open about the challenges they face. Teams typically perform best when the levels of trust are high.
We believe this is the future for digitally native businesses or those wishing to transform and grow with the help of a technology partner. But how to make it happen?
Accelerated Change
In proactively building a trusted relationship we would expect contracts to be around behaviours, not SLAs. They will describe how issues will be resolved in much the same way as they would be internally, rather than immediately apportioning blame and imposing penalties. We have found that openness about problems in both directions, from buyers and providers, leads to issues being resolved together and more quickly, but trust has to be in place for this to work. Risks and rewards will be shared by buyers and providers alike, giving both parties’ skin in the game’ and leading to a focus on the outcomes of the partnership rather than processes.
In our experience, when you get this right, the benefits are huge, including more spontaneous innovation, creative problem-solving and much better business outcomes.
When looking for a suitable partner, first consider the requirements of the relationship. If a worldwide physical presence is needed, for example, a larger organisation may be appropriate. For innovation projects, a smaller provider may have more agility.
5 tips for tech and product leaders to build truly trusted outsourcing relationships
- Don’t ‘be a Roman’ relying on penalty clauses to drive performance.
- Be prepared to let go. Don’t try to micromanage the relationship or contract.
- Be a leader for people outside of your organisation as well as within your organisation. We have found the effect of CTOs sharing their company’s vision, and roadmap with outsourced teams is far-reaching.
- Become a relationship builder, resolving issues together with your provider, rather than by contract terms.
- Find organisations you trust to be a true partner. It’s not always easy to do. Of course, take up references and meet face-to-face where you can. More importantly, however, find organisations that have taken the time to invest in culture and approach.
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Want to work with a technology partner you can trust? Talk to us about your technology challenges today.
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