The Role of Outsourcing in the Future of IT Services: The New World of Work Meets Outsourcing

Outsourcing Software Development
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Where does the “New World of Work” leave Outsourcing?

It’s no secret that great local technical talent is expensive and difficult to hire across a number of industries, especially in places like SF and NYC. Meanwhile, smart and ambitious engineers around the world are looking for the best opportunities, which may not be available in their local economy. This is not a new revelation – companies have been looking across geographic barriers to find talent for decades.

Going all the way back to the 1980s, a critical mass of western companies started moving specific business functions to specialized contractors overseas. These companies were able to lower their operating expenses by taking advantage of cost-effective talent; increasing their profitability – fueling the growth of a massive outsourcing industry in countries like India and Bangladesh. Cognizant, one of many large IT outsourcing companies based in India, generates a whopping $12B in revenue annually.

However, historically there has been a big gap between the talent and the ‘client side’ of this business relationship, mainly due to communication difficulties and cultural differences. Distributed contractors traditionally aren’t considered “co-workers”, but rather part of an outsourced team hired to handle a business process (e.g. a development center or call center). Some firms also offer “outstaffing” services, where their employees act as remote full-time employee for their clients.

While outsourcing and entry-level outstaffing will always exist and will likely continue to grow in the future, we’re now seeing a new type of model emerging: the distributed organization, where employees at every level of the company are geographically distributed. Automattic (the creator of WordPress, valued at over $1B), for instance, is a fully distributed company, with remote workers in 43 countries, while Stack Exchange and Upworthy give all employees the option to work from home if desired.

What does the distributed organization tell us we need to change? Right now the de facto work method is to get as much as possible done in-house, it’s generally considered ‘better’ and more efficient due to the unified location of workers. These paradigms are surely shifting – and geographically distributed teams may, eventually, even become the preferred method of employment by the companies with the most employees (since distributed organizations can scale easier). This newly innovated old practice may shed the name ‘Outsourcing’ – and is already beginning to be called distributed or ‘Cloudsourcing’ instead.

We are just now realizing, in massive numbers, the fact that work is something you do, not a place you go. Before, everyone going to the same place at the same time was worth it for communication purposes alone – but that was before the internet – let alone before Slack, Skype, Asana, Google Drive, Google Calendar, etc. etc.

Now, we have unlocked new levels of communication and productivity by shifting to virtual work and realizing the benefits of distributed working practices:

– The very instant you move online you move into transparency.
– Real-time data from online work means a focus on results.
– Your brain isn’t productive ‘on-demand’, you experience significant productivity losses by not being able to work when you want to.
– Online communication is more directly focused on the task at hand – you can communicate with pictures, videos, and most importantly, screenshots.
– Communicating online is transforming away from another method of having an in-person exchange, beginning to morph into a singular cloud of sharing awareness and thoughts.

When did distributed working become better? I couldn’t say exactly when, but I personally realized the world of work would never be the same about 2-3 years ago, a time I needed to explain a change I just made to my co-worker, and instead of stumbling into narrative I turned away from him – snapped a screenshot on my computer after making a few marks. It was a totally unconscious effort by my brain to use the most intuitive interface for communication — which was the computer screen, not the windpipe.

In a recent survey at the Global Leadership Summit in London, 34% of business leaders said more than half their company’s full-time workforce would be working remotely by 2020. A quarter of managers surveyed were confident that the majority of their workforce would not be working in a traditional office by 2020. This is not some far off, futuristic era; it’s only four years from now.

Research (e.g. from Jerry Porras at Stanford) has shown that superior long-term business performance comes from tightly integrated, values-driven teams. This could pose a problem for the distributed teams or organizations. Sharing visions, turning values into action and putting it on display company-wide is something we already are not very good at. At the same time, it’s often substantially less expensive to build distributed teams than local ones. The way to optimize on both fronts, then, is to deeply integrate talented remote workers into a company’s culture, values, and organizational structure. This is the single most difficult challenge millennial executives-t0-be are faced with. To me, it is certainly a worthy cause.

What else does distributed organizations or Outsourced teams mean, besides efficient communication?

1. Distributed organization means your business:

– Is able to hire the best available talent at the most cost-effective rate, in the least amount of time
– Can increase productivity by accessing the skills that are required, when you need them
– Accesses diversified international expertise with unique creative and technical perspectives
– Has a more efficient recruitment and operational workflow

2. Blending the resources of Outsourcing partners into your distributed team means:

– Recruitment process is taken off your hands completely, and more budget is free for Marketing or other functions
– You have access to skilled, vetted IT professionals worldwide at a lower cost
– You can access more advanced technology or skill-sets than what your team currently possesses
– You achieve significant overall cost savings and boosts in profitability

These emerging trends recognize the fact that technology has freed businesses from the constraints of a shared location and enabled them to access top talent wherever it may be based in the world. Seemingly all signs indicate that the IT industry in particular is likely to be based around remote, distributed working.

Distributed working reflects the sizable part of the modern economy where work is done by a highly skilled, often highly specialized workforce and often on a project-by-project basis. Although many industries are seeing more and more distributed workforce, including publishing and journalism, IT is the industry that’s most benefiting from this trend. Not only does the highly-skilled nature of projects in the IT industry suit this style of resourcing but it’s perhaps also an industry that’s always been quick to embrace the kinds of technologies that enable this style of working.

The wildcard in all of this is the role Machine Learning and AI will play in affecting the workforce and how value is derived from it. Artificial intelligence and machine learning systems are made up of code and algorithms, and as such, they work as fast as computers can process them.

Imagine a scenario where you arrive at your desk on a Monday morning and find hundreds of recommendations for business process improvements from your AI and machine learning systems. Each of the recommendations might take weeks to socialize across the organization and implement. Now, imagine that happens every day of the year. In this scenario, humans are the weak links in business process optimization – and the world of work will need to shift yet again.

Here’s a few final parting thoughts to consider while adapting to Outsourcing or running operations in general here in the New World of Work:

1. Look for People analytics to gain in prominence. Although it is a relatively untapped practice at the moment, the use of wearable technology is becoming more popular and will help to advance this – as will the gathering of employee-related big data and new inventions, like smart employee badges; as more insights become available, more organizations will adopt people analytics.

2. Companies need to adapt transparency standards with Outsourcing partners and normal operations. Collaboration platforms now allow you to verify and quickly see samples of work and progress; and with the control the platforms give you, you are able to manage the hours you spend much closer and more effectively than using a service contractor in the ‘traditional’ (old) way.

3. Employee/employer relations will never be the same again. The use of freelancers and the ability of employees to take on numerous roles within an organisation mean the relationship between the two will be drastically different – it has already evolved significantly within the last five-to-ten years.

4. Employee experience should be given priority. Business leaders need to ensure they create a working environment employees want to spend time in; they cannot assume that people need to show up at the office, for example – they need to actively make it the place to be.

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