Key trends driving the future of IT outsourcing
This Isn’t Your Father’s Outsourcer
Technology transformation is not only having a major impact on industries around the globe, but it is also helping to shape the future of IT outsourcing. I recently came across an article written by Deloitte principals in CIO Journal, “Five Forces Shaping Outsourcing for Tomorrow,” that touched on the prerequisites for an effective outsourcing model for digital transformation services and solutions in today’s business environment. It got me thinking about the ways outsourcing is changing and the drivers behind those changes.
A key change is that one company can no longer outsource its IT project in a vacuum. Today businesses require a whole army of providers, or as Deloitte principals said, “a complete ecosystem of providers” who can work in partnership with each other to bring key capabilities to the project.
In the past, customers turned to big consulting firms or ERP systems to deliver the capabilities that they needed in a one-stop-shop. But as technology has become more advanced and specialized, and customers have required more targeted services, a one-size-fits-all approach is no longer a viable solution.
Companies today need an outsourcer that not only acutely understands their specific business needs, but that also can translate that understanding into solutions that leverage best-in-class partners with specific expertise to quickly and efficiently bring the solutions to life. For example, my company recently worked with a pharmacy benefit manager (PBM) to build an online delivery application. It was apparent that the pharmacy required many capabilities with specialized expertise. In addition to the AI expertise that we were providing, the pharmacy needed a bank to handle payments, a transportation company to manage the delivery and logistics, and a design thinking company to strategically develop the program concept and design. We worked together with all of these firms through an open and transparent process to deliver the online delivery solution. This included weekly meetings to ensure that we were collaborating and communicating seamlessly to deliver a solution that fulfilled client expectations and needs.
Another requirement for outsourcers today is to not only be technology experts, but sector-specific experts as well, or as Deloitte says, having a “sector-specific focus.” This is particularly critical in AI development, where knowledge of specific sectors and industries, and their business problems is paramount. Since AI is all about gathering data to fuel algorithms so that they can become proficient in solving a specific issue, it is essential for an outsourcer to have a firm grasp of key issues to ask the right questions, gather the relevant data and develop an effective algorithm. An active provider to an industry or sector may have accumulated experience helping a similar company solve a business challenge with AI. This insight – along with an existing database of industry data – could give the firm a serious leg up for future projects.
As an example, consider the development of a chatbot to support a customer call center. It’s important that the outsourcer understands how call centers work, the most common types of questions customers ask, what happens when it takes too long to solve customers’ problems, and the types of things that customers find most frustrating, etc. If a provider is immersed in this industry, some information gleaned from past experience could be transferrable to other call centers, although the specifics of a particular call center will also be key.
With the complexity of advanced AI and other IT solutions, as well as the growing need to protect sensitive customer data, ensuring compliance to federal, industry-specific and corporate rules and regulations is critical. Today’s outsourcers need to be proficient in these requirements and to be able to easily demonstrate their compliance, as well as help companies to establish the processes, protocols and software they need to achieve compliance with their industry regulations. If outsourcers have sector-specific expertise, it will further their knowledge of industry-specific rules and regulations, which in turn will drive their ability to deliver technology that addresses the specific needs of that sector. As the cost of non-compliance – in terms of dollars, reputation and penalties – continues to grow, so too will the value that is placed on compliance as a core competency.
Some speculate that the industry is moving toward an outcome-based model of payment, while others believe it will continue to be determined on a project basis. I think an outcome-based model is not sustainable or practical given the complexity of today’s IT projects. Rather than focusing on a specific model, the future of outsourcing will be furthered by mutually beneficial relationships between the companies requiring services and solutions and the outsourcers that are providing them.
The driving need for this type of a relationship is based on the fact that AI projects are never one and done, but rather require the continuous maintenance and feeding of algorithms and updates as changes occur in the enterprise. In addition to AI solutions, most digital transformation projects take place over time and require true partners to see them to fruition. In the future, the lines between who is an outsourced contractor and who is a full-time employee could very well blur, given the close partnerships and business understanding that will increasingly be required.
The face of IT outsourcing today looks dramatically different than it did even a few years ago. Outsourcers need to evolve along with evolving technology and business needs, no longer working as solo providers providing one-off projects, but as true business partners, working closely with companies to solve critical business challenges through the best means possible. To that end, outsourcing is no longer a commodity, but rather a business partnership focused on mutual trust, honesty and respect.