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Fundamentals of IT outsourcing: advantages, disadvantages, trends

The IT sector remains the main driving force of world progress. Therefore it has traditionally attracted many people and companies. Industry specialists receive high salaries, as they create unique projects, for example, based on blockchain, change the world around, making it more perfect and convenient. It is not easy for developing organizations in this rapidly changing world to adapt, meet increasingly stringent requirements, maintain the efficiency of internal processes, which is why IT outsourcing is gaining popularity.

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Technavio estimates this market at $409 billion by 2022, with a CAGR of over 4%. Contributing to such impressive growth will be that the boundaries between hired developers, partners, and customers today virtually disappear.

The relevance of the topic prompts the experts from Boosty Labs company that focuses on .Net development outsourcing and Python development outsourcing, to try to understand the main features of this kind of IT services, formulate and describe a certain basic concept of IT outsourcing, and also talk about the most effective methods and rules for delegation.

What is outsourcing and IT outsourcing?

Let’s first say what outsourcing is and, in particular, IT outsourcing. The first term means the practice when companies or individuals external to the customer perform certain work, conduct their internal processes, which, in fact, are related to a completely different business. Thus, your employees can focus on other things, freeing up their time, which ultimately will decrease the company’s overall costs. In short, outsourcing allows you to perform core functions without wasting resources on secondary tasks.

IT outsourcing

Accordingly, IT outsourcing is the same, but only in one specific area of ​​information technology. In this case, companies can outsource virtually anything – software development, processes related to databases, customer support, etc. Typically, IT corporations contract with freelancers or teams from countries where payment requirements are lower than the customer. High-level outsourcing is also possible when enterprises enter into deals with equal partners and transfer the main tasks. This is value-added outsourcing.

In summary, there are three main types of geographic IT outsourcing:

  • offshoring – transferring tasks to a significantly remote country; helps to cut costs, avoid high taxes and enter a milder market;
  • “near shore” – transfer of business processes, for example, to the nearest neighbors; it is more convenient if you need to control everything personally;
  • work from home – in this case, local teams work or even your own employees, but from home.

In addition to these categories, there is also functional outsourcing – BPO (transfer of non-core processes and entire areas, for example, support or HR), co-sourcing (when the company delegates literally everything, and not one or two functions), and multi-sourcing (one client cooperates with several teams at once under one contract).

Examples and IT outsourcing services 

The IT industry is huge, consisting of several levels – from initial business analysis to lifelong support for the finished product. Formally, you can create and lead all of these directions, but you are likely to run into difficulties at some point. Here’s the list of the most popular outsourcing functions: 

  • development of software applications;
  • maintenance of software applications;
  • data centers;
  • IT infrastructure;
  • support;
  • networks;
  • integration;
  • HR.

And now, let’s talk separately about the basic concept of IT outsourcing in SCM. Supply chains benefit greatly from the use of information technology because developers can facilitate every step. For example, e-commerce digitizes many non-essential functions and reduces costs, while ERP tools allow for internal integration and thus help parties access a single database. Many organizations outsource their ERP and other IT functions to increase the profitability of the supply chain or any other business.

Let’s compare similar processes and tasks that can and cannot be outsourced to make it clearer. Typically, you can delegate ongoing chores, such as data validation or quality control, but you cannot do that with unique and creative activities. 

This also applies to work that requires, in fact, only formal knowledge (programming, testing) but does not apply to the “highest level,” where advanced skills, non-standard thoughts, and moves (top management) are important. Also, any measurable things can be outsourced, but don’t outsource something you can’t measure because then you won’t properly evaluate their performance.

Finally, the “golden rule” of IT outsourcing is never to reallocate processes that are closely related to other internal processes. Remember, it’s always better to do things related to each other, so to speak, under one roof to avoid possible misunderstandings and the cost of correcting mistakes.

Awareness and acceptance of the concept of IT outsourcing 

Now it is clear how outsourcers work. If you plan to diversify your business, it is best to clearly define your needs, wants, and goals before delegating anything. 

First, set global goals and divide them into smaller ones to see which things are unnecessary and the main ones. Leave the key processes to yourself, and your team should focus on the most important points. And the minor ones can be transferred. However, if you’re still unsure right now, take a look at some illustrative examples of the pros and cons of IT outsourcing.

There are three main benefits that you can get from delegating internal processes:

  • lower costs – a properly selected foreign partner will be cheaper in all aspects – this concerns personnel, equipment and services, for example, hosting or maintenance;
  • high qualifications – good outsourcing companies are experienced enough to provide the best level of knowledge, including higher than that of your employees;
  • in addition, you will be able to freely receive and release additional resources (human, material) for solving other problems.

Below are 7 major IT outsourcing trends in SCM and other sectors (forecasts based on data from Statista, Deloitte, GSA, and Gartner):

  • less attention to price cooperation – the parties will focus on the value of interaction, and not on its price; it is obvious that costs are important, but they are no longer a key indicator;
  • due to the growing needs for industry knowledge and skills, clients tend to choose several specialized companies at once;
  • alternative geographic directions of outsourcing – we can expect more interest in players from Central and Eastern Europe;
  • new business models – since partners will share responsibility for the result, new contracts will appear based on the results obtained in the initial project, and the time frame will be reduced;
  • expanding the scope of outsourcing – accordingly, with an increase in reliability, partners will outsource not only secondary tasks, but also key processes;
  • automation, bots, robots, AI and virtual assistants will become even more skilled in the future and will be able to cope with most IT tasks;
  • cloud technologies – more and more things will migrate to cloud platforms, so the IT sector must prepare for a boom in storage and security projects.
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