CIOs Are Still Betting On Outsourcing in a Demanding Market

Outsourcing continues to be a popular strategy for businesses looking for a cost-effective way to meet their IT requirements. The pressure to accelerate one’s digital transformation is more intense than ever following the COVID-19 pandemic, which pushed companies to offer their products and services via online platforms.

While outsourcing is usually undertaken to either save costs or to bring on experts in specialist technologies such as blockchain or virtual reality, the market is growing and changing and the value of outsourcing has shifted somewhat. Faced with post-COVID job market issues such as the staff skills gap and the “great resignation”, CIOs are leaning on outsourcing for IT talent more than ever.

Not Just About Saving Money

Outsourcing is no longer seen simply as a way to get an IT job done on the cheap. Instead, the specialist skills cultivated by the experienced developers belonging to an outsourcing company are proving invaluable to a company’s digital strategy. Delta Air Lines, for example, initially outsourced to IBM in 2016 to save on costs, only to contract them in 2020 to manage their cloud migration and modernize their apps.

Because of the focus on value added by skills, experience, and efficiency, companies are developing closer, more long-term partnerships with outsourcing partners.

What Type of Work is Being Outsourced?

The types of skills that outsourcing is favored for may also be changing. Application development remains the most common outsourced task, but other undertakings such as helpdesk support, integrations, and backups are growing.

In particular, many CIOs are forming outsourced partnerships for cloud migrations, data center management, and cybersecurity.

Outcome-based IT Outsourcing and Risks

Outcome-driven pricing is the current trend in the outsourcing market, based on business metrics such as customer acquisitions, retention, or time-to-market. These types of contracts move the focus from cost saving to added value and generally lead to a closer collaboration between client and contractor.

With all the changes going on in the outsourcing market, CIOs should still keep in mind potential pitfalls, such as linguistic, cultural, and time zone differences affecting communication, as well as excessively punitive or unclear contracts. In all cases, a new outsourcing partner should be vetted by in-house IT experts, and, where possible, not have problematic or broken projects simply handed over to them without guidance.

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