Before we dive straight into the major IT outsourcing trends, let’s first define the definitions of IT outsourcing and outsourcing in general below:
To obtain goods or services from an outside supplier, especially in a place of an internal source.
IT outsourcing definition:
To obtain goods or services related to software development, infrastructure, maintenance and support from an outside supplier – especially in a place of an internal source.
(source: Oxford Languages)
IT outsourcing is on the rise
IT outsourcing is a hot topic right now, and is a topic that has been discussed by a lot of businesses around the world ranging from large enterprises to growth startups. In general, outsourcing IT related services means hiring another company to conduct planned or existing IT services externally. This can also involve transferring employees and/or assets from one company to another, similar to Seven Peaks’ dedicated teams model for example.
One of the reasons why companies outsource their IT tasks is to gain access to additional IT specialists with the relevant experience and expertise needed. Finding them can be a challenging task for most businesses, which is why firms tend to consult to gain the right professionals who can perform specific IT tasks.
Top outsourced IT functions:
- Application development: Developing new or improving existing applications for either mobile or the web.
- Application maintenance and support: Taking over the ongoing maintenance of existing applications.
- Data center operations & database operations: Helping operate the data center whilst monitoring and tuning the databases.
- Disaster recovery: Managing off-site data storage and recovery data centers used in the event of a disaster.
- Network and web hosting operations: Hosting, operating, or maintaining a website or application.
Why do companies choose to outsource IT services?
You may question that, if some companies have the capabilities to perform and manage IT services themselves, then why should they choose the outsourcing route? Here are a few reasons why:
- To save time and reduce costs
- To focus on other core business objectives
- To improve service quality in the IT field
- To receive help and support from top industry professionals in the IT field
Companies are increasing their budgets for IT development, and the numbers keep on growing by an average of 2-3% increase each year! This is due to the market requiring thousands of newly skilled software developers of various technologies and frameworks – both old and new.
The major IT outsourcing trends we need to expect
Artificial Intelligence (AI): AI, Robotic process automation and the Internet of things (iOT) will all factor into transforming overall customer experiences worldwide. AI-powered chat-bots will transform processes dramatically and will be most likely to grow more in use. This is due to up to 70% of millennials being satisfied with their interactions with chat-bots, thus making chat-bots extremely likely to replace humans when it comes to giving clients online advice/guidance. Would this lead to a threat or an opportunity? Make sure to let us know in the comments!
Cyber security: As technology is accelerating rapidly, cyber-crime has also rapidly grown in size. Social media plays a major role in this future issue, causing more businesses to adopt cyber insurance policies to keep their online data safe.
Cloud data storage migration: The current worth of cloud computing has now reached $180 billion. As the Software-as-a-Service (SaaS) market is growing by a significant amount each year, it is expected that the global cloud computing market will be worth $411 billion in the near future!
The 5G network: The speed of data exchange and the number of devices connected to the 5G are the biggest selling points of 5G. Global society will benefit from faster and more powerful data exchange as it will also enable companies to build full-scale smart cities where everything is connected. 5G will cause a massive change in the global information infrastructure. The roll-out of the fifth generation of networks will trigger changes in the automotive, Augmented Reality/Virtual Reality (AR/VR), mobile connectivity, telecommunications, and all other digitized industries.
The top industries that will outsource IT the most
Financial technology (fin-tech): The global financial technology market is predicted to reach a high $300+ billion value. This is due to the high demands in block-chain technology, digital banking and AI-based solutions to help empower more users to perform more secure financial transactions whilst being anywhere at any time.
Health technology (health-tech): Health-tech, or med-tech, will soon be a trillion dollar industry. Both medical institutions and health-tech startups are working on solutions on leveraging technology to help reduce healthcare costs, increase accessibility and improve hospital administration. The use of health-tech gear, such as wrist bracelets and heart-sensors for example, is expected to be a major game-changer for the health industry.
Telecommunications: The mix of 5G network, The internet of Things (iOT) and Smart Cities will all factor in why telecoms is a very hot industry for the future of IT. 5G will contribute to much more connected networks, allowing for higher quality videos, more detailed virtual reality systems and even fully operated modes of transport. iOT will connect many more devices to operate seamlessly together, and with it, smart cities will be the industry that will bridge communication between the huge iOT systems.
As more industries continue to become more digitized, an increasing number of businesses are turning to outsourcing to approach hiring the right IT talents. The global IT outsourcing market reached a whopping $85 billion back in 2018, which is demonstrating a sign of steady growth of the IT industry for 2020 and the years to come.
IT outsourcing models
Project-based: The ideal strategy for allowing businesses to partner with IT service providers that have the required exclusive expertise that is lacking in-house. Expect responsibilities for high-level business management for this model; usually handling the business-side of the project requirements but not necessarily managing the development processes directly.
Staff augmentation: Ideal strategy for acquiring needed expertise for both short and long-term projects with the aim to avoid hiring new full-time employees. Responsibilities include taking care of infrastructure and other costs related to having full-time workers as well as supervising, leading, and managing resources.
Dedicated development center or dedicated teams: The ideal model for when a company needs to locate their needed resources in another country in order to gain access to more talent resources as well as benefit from lower labor costs and taxes, whilst still maintaining full control of the work processes.
Forms of IT outsourcing
Offshore outsourcing: This means outsourcing to companies located at a far distance. The time difference between the service providers is typically 5-6 hours apart.
Nearshore outsourcing: Outsourcing to companies located at a fairly close distance. The time difference between the service providers is typically 2-3 hours apart.
Onshoring: Outsourcing to companies located within national borders – usually resulting in lower operational and labor costs. There is typically no time difference between the service providers.
Homeshoring: Outsourcing to companies located within national borders and hiring remote workers who work from home. This form of IT outsourcing has increased in popularity during the COVID-19 period.
Multisourcing: Outsourcing the business processes to multiple vendors with the goal to diversity the risk in vendor operations.
Top demographic factors of an ideal IT outsourcing location
Location and time zone: Strong geographic location, ideally with short flight times to multiple neighboring countries, and good working hours overlap with European, U.S. or Asian time.
Population and language: Strong command of English as a first or second language for sufficient universal communication across teams.
IT maturity, talent pools, and quality-to-cost ratio: Low labor costs to perform cheaper IT services whilst still maintaining a high quality at a global level.
There are no barriers when it comes to IT outsourcing on a global scale. Companies choose to outsource their services to companies abroad due to lower labor costs, better economic conditions, different time zones and access to pools of talent.
It’s the small businesses who are expected to outsource most
Most small-medium enterprises are already outsourcing at least a part of their business processes. This is due to smaller companies being able to typically adopt new approaches, services and technologies much faster due to higher agility in small organization sizes – making a perfect fit for outsourcing IT services with lean and agile methodologies.
According to Clutch.io, around 52% of small business executives are expected to continue outsourcing jobs/services in the year 2020.
On the other hand, larger enterprises are slowly showing less interest in IT outsourcing development jobs. Instead, they are investing more into cloud computing and SaaS outsourcing – which is expected to keep growing and further predicting a future worth of over $115 billion.
Do you need to outsource your IT development? Get in touch with us below to see how we can help you!
“Technology is best when it brings people together.” – Matt Mullenweg
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