Four ways you can leverage IT outsourcing to release growth

This article was first pubished in E&T Magazine

Over the past two years, a relentless focus on reducing cost throughout technology and business supply chains has enabled businesses to survive the Covid pandemic. With the crisis abating, businesses have switched their focus to growth and innovation. However, competition for IT talent in particular is fierce, and many organisations fear being unable to secure and retain the IT design and delivery skills they need to power transformation.

This combination is driving growth in outsourcing intentions across the UK – particularly in the manufacturing and chemicals sector. PA Consulting’s 2022 IT Sourcing Study, conducted in collaboration with Whitelane Research, found that one in two manufacturing and chemicals firms expect to outsource more over the next two years. And 60 per cent highlighted a need to focus on their core business to drive growth, and access to talent, as the top two drivers for their plans.

The trend towards connected enterprises is a central factor. Many firms are looking to improve data flows across key customer, operations, maintenance and logistics platforms to spur efficiency, responsiveness and growth. Technology transformation is at the heart of this, potentially combining Cloud migration, new point solutions to augment (or replace) monolithic ERP systems, and extending cyber controls to operational as well as information technology. Delivering this scale of change requires investment, significant delivery expertise and scarce technical skills.

There are four approaches to working with IT suppliers that organisations struggling to meet these challenges should consider to help them meet their ambitions.

Use the outsourcing marketplace to access scarce IT skills

IT talent is consolidating in firms that can provide a variety of work, high rewards and strong recognition – in other words, in consultancies, systems integrators and technology service providers. If you need scarce IT skills, this is where to look.

Suppliers with a global presence have access to the deepest resource pools. But even markets that have previously been able to deliver a steady supply of talent are facing challenges. In India, for example, suppliers themselves are experiencing high rates of attrition. In Ukraine, a thriving IT outsourcing market has been seriously disrupted by war.

When you select suppliers, choose those with a range of nearshore and offshore delivery options. This will enable them (and you) to flex and mitigate risk from country-specific challenges.

Rethink which services you are prepared to outsource

Organisations have always had a limited appetite for outsourcing services that demand significant business insight or are particularly sensitive. But the talent needed to deliver these services – such as digital, cyber-security and data-science experts – are especially hard to recruit. This presents businesses with something of a Hobson’s Choice: either struggle to maintain in-house delivery which may be sub-standard, or rely on suppliers to support critical business processes and functions.

Ultimately, ensuring access to the right capabilities will force your hand. The answer is to mitigate supplier dependency risks by using hybrid delivery models, such as blended teams to transfer skills to your people. Alternatively consider build-operate-transfer models – where a service provider sets up, optimises and runs an operation before transferring it back to your organisation.

Use your suppliers to drive change

Adoption of agile ways of working is sweeping across the IT industry as firms look to increase the speed and reliability of delivering change. Alongside this, half of firms in our survey said they also expect most of their applications to have migrated to Cloud platforms within two years to increase scalability with business demand and support agility and DevOps.

IT suppliers and consultancies are the leading experts in this field. PA Consulting’s research found that 73 per cent of firms leverage their IT service providers expertise to accelerate this move and deliver business change more quickly. The key challenge in realising the full benefits of this work is that they often need to change embedded operational and governance processes as well as IT. If your supplier is unable to support this work, change them.

Invest in your in-house leadership

Irrespective of the changes you make to your sourcing landscape, you must retain core leadership capabilities to set direction, maintain control and assure delivery. This includes the ability to understand and procure the services required and to manage the transfer of outsourced services from one supplier to another.

In the PA Consulting survey, almost all firms recognised the need to improve key skills in these areas, with 85 per cent citing transition and 81 per cent citing demand management as areas where they needed to enhance their capabilities. As you reshape your sourcing strategy, it is important invest in these skills in order to engage as an equal with sourcing partners and establish a professional partnership from the outset.

An effective IT supply chain is essential for every business looking to transform for the future. Outsourcing has a vital role to play in providing access to skills and accelerating delivery. But in leveraging these opportunities, it is vital to choose carefully which services to outsource and which supplier and operating model is the best for building a reliable, sustainable solution. That includes recognising the need to invest in your in-house team to make sure that you and your suppliers continue to deliver effectively together.