What’s next in IT outsourcing? 6 trends to watch

IT outsourcing trendsAs more companies consider service providers as an extension of their own enterprise, an increasing number are choosing to outsource business functions to trusted partners, especially when it comes to information technology.

Here are six trends that will come to the forefront over the coming year, including a growing emphasis on partnerships and a heightened demand for specialization in emerging technologies like IoT and AI.

1. Traditional captive centers will decrease

Captive centers will die as cost arbitrage slowly vanishes and global companies’ inability to meet captive centers workforce expectations related to career growth and salary increases. These expectations are influenced by local and cultural factors, which are not well understood by global companies. This will result in high employee turnover, low productivity and low client satisfaction.

The model that will sustain will be referred to as an outsourcing partnership. This could be a joint venture with an existing IT offshore company with proven delivery capability, or partnership with tighter control on delivery operations. In both these models, the offshore partner will have the flexibility to manage career growth and compensation expectations, and planned employee rotation (to other clients/projects), while the global company has a tighter control on the delivery, and security.

2. Partnerships will become more critical

Companies today require technical expertise not easily found or retained (due to skills shortage, high cost, attrition, etc.). They need a partner who not only understands their needs but can anticipate what may be relevant to solve problems and get their business objectives met. This requires a nontraditional outsource provider. One who invests with the client by collaboratively building a team that acts as one and works together to achieve a common goal. This requires dedicated teams who are aligned and incented to attain shared success. Technical know-how is a given. Transparency, trust and “skin in the game” are part of the new outsourcing narrative.

3. The growth of emerging tech will increase

Technology trends such IoT and blockchain have exploded in the past few years. As companies continue to grow and compete in these tech spaces the need for highly skilled developers will continue to grow. Companies will look to outsource providers to find a scalable solution to build development teams with hard to find skillsets. In addition to IoT and blockchain, the need for tech skillsets in cloud deployment and Big Data will continue grow at an aggressive pace.

4. Companies will focus more on value and less on cost

Historically, cost was a big factor behind IT outsourcing. While it still remains as a key element, clients are concentrating more on the value of the services being provided. The market will see an increased focus on areas like productivity, quality and security. Today’s customers are highly educated and fully aware of any failures associated with outsourcing. This, combined with the need to deliver IT solutions in time, will increase the need to provide better value to the clients, with transparency. In the process, the clients will pay more money for value added services and high-quality service providers. There will be a fundamental shift in the focus from ‘cost of the services’ to ‘value of those services’.

5. The IT skill shortage will intensify

Beginning in 2016 and continuing last year, hiring of skilled IT workers has become increasingly difficult. In 2018 this trend will almost certainly continue as most businesses are becoming increasingly technology driven or at least technology enabled requiring an increasing number of qualified IT resources.

One of the outcomes of this trend is to drive companies to embrace outsourcing of additional IT roles previously performed by internal staff. This will result in heavy demand for key skills like mobile, open source and Microsoft software development skills from outsourcers.

Programmers with specialized skills in newer technologies will be even more difficult to find and infrastructure / network resources will be in high demand as well. Outsourcing could see significantly increased adoption rates as we move through 2018 and 2019 as increased salaries and skill scarcity increase the attractiveness of working with outsourcing partners to meet many organizations’ IT skills shortage.

6. The demand for “Soft skills” will rise

While the pressure for obtaining the right technical (“hard”) skills will still increase at a rapid pace, the need for human (“soft”) skills will become more important. Soft skills like communication; being a team player; knowing when to say no and yes; when to take on a leadership position, etc. all have as much to do with the success of information technology projects as does having the right programming skillset. In the lean environments of future engagements there will be no place to hide. Developers must be prepared to fully acquire all the skills, both hard and soft, needed to compete in tomorrow’s marketplace. This is what clients will demand.

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