When does IT Outsourcing work? And when doesn’t it?

BlogPUBLISHED ON November 11, 2020 | MODIFIED ON February 11, 2021

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When does IT outsourcing work and when doesn't it infographic

IT Outsourcing works when both partners have a “what’s in it for WE” approach. How is that established? And is it even possible in the real world?

IT outsourcing, especially nearshore IT outsourcing, is a big, quickly growing industry. If you are reading this, the chances are you are а stakeholder of one kind or another in the industry, and know that why is not rocket science. Internationally, there’s a skills gap between demand for and supply of IT specialists. And the gap is biggest in the most developed economies, pushing up rates to levels that can be difficult to commercially reconcile with business cases. If the specialists can be hired at all, retention becomes an issue.

Throw in other drivers like organisations ideally, or necessarily, needing different IT specialists at different times, to work on different projects. An inhouse team on permanent contracts, of a relatively stable size and representing a particular tech stack, often just isn’t flexible enough to meet evolving and revolving IT needs.

If you have experience in the IT sector and market for IT specialists you know that IT outsourcing makes a lot of sense for many organisations.

When it works well, it solves all of the problems it’s supposed to:

  • Nearshore or offshore IT outsourcing often brings high costs down to more commercially viable levels.
  • Flexibility to scale teams up and down as needed by project cycles.
  • Flexibility to adjust tech stack, experience levels and other variables as needed by project cycles.

In short, you always have the right size of IT team, with the right blend of skills and experience. Often at a significantly lower cost than the fixed overhead of an inhouse team.

When does IT outsourcing work well?

 

If IT outsourcing always worked well, it would be a no-brainer

There are plenty of scenarios when an inhouse IT team is necessary or the optimal approach. If it’s clear that certain IT skills will be needed at a reasonably constant rate over the next several years, there’s a strong argument in favour of hiring full-time, permanent employees inhouse.

Which is what many organisations do, while simultaneously also working with an IT outsourcing partner to add project-cycle-based flexibility to compliment and support the core inhouse team.

For many, IT outsourcing works wonderfully. It’s the perfect strategic fit, for all the obvious reasons. It doesn’t mean there are never challenges or hiccups along the way. As there is with any inhouse team, no matter how good. But projects are completed to at least the same standard as would be expected inhouse.

When an IT outsourcing partnership is working as it should, the quality standard would be expected to be even higher, thanks to the broader experience of specialists working on projects and specialist experience in project/delivery management. Plus, the costs and flexibility bonus. Perfect. Everyone’s a winner.

But IT outsourcing doesn’t always work out well

But..IT outsourcing doesn’t always work. We’ve all had experience of business relationships around services provision that unfortunately don’t have succesful outcomes. Why can range from quality or organisational structure problems on the side of the provider or client organisation. The relationship simply not being the right cultural fit. Or a mismatch when it comes to expectations on either or both sides.

When professional relationships don’t work out, instead of neatly and efficiently solving business problems, they can instead create new problems. Which makes it really important to understand when they do work, and when they don’t. We can then embrace those with a positive outlook, and walk away from those that flash warning signs.

When and why IT outsourcing works….and when and why it doesn’t

IT outsourcing is a business partnership. Successful, sustainable business partnerships, in fact any kind of partnership, all have one thing in common – they are of mutual benefit to both partners. IT outsourcing relationships are no different. They are successful when both parties adopt, and continually work on a what’s in it for WEapproach.

IT outsourcing delivers fantastic results when the client organisation’s goals are realised in a way that is commercially viable for the service provider.

It’s not complicated. It’s theoretically obvious. And despite that, many outsourcing partnerships deliver less positive outcomes than would be the case if both parties approached all communication and decisions with it in mind.

Think about the succesful service-based business relationships you’ve had. I bet one thing they all had in common was trust (earned through living up to it) and transparency. Succesful IT outsourcing relationships are no exception. They work when both client organisation and provider are transparent about their needs and business case upfront, and throughout the relationship. Cards on the table.

“If it works for us both, full steam ahead. If it doesn’t, we’d best not do it. Someone will have to cut corners to force the square peg into the round hole”.

Problems only arise when that very simple rule is broken and one side or the other tries to force a square peg into a round hole for shortsighted reasons. And when either party views the other with the suspicion they are a “what’s in it for me?” organisation. Or approaches the relationship with that mindset themselves.

Simple in theory, takes work in practise

Sounds simple, right? But like most simple things, the quality of the end result is all about the execution. And that’s the part that does need both parties, outsourcer and client organisation, to make a conscious effort to keep a “what’s in it for we” approach at the centre of all discussions and negotiations.

In the real world, it’s not easy to build a trusting business relationship where both sides have real confidence in each other’s commitment to a genuinely optimal win-win. But it can be done. How?

Real trust takes time to build. But to be given that time, both parties have to believe in the potential for it to happen. That process is not too different to how we establish long term relationships in our personal lives. Which shouldn’t be surprising as personal and business relationships are built on the same human psychology. There are differences, not least because business relationships tend to involve more people and often multiple decision makers. But there are more similarities.

IT outsourcing partnerships need to get off to a good start to deliver long-term results

There are healthy, long-term relationships that get off to a rocky start. But they are a small minority and require specific circumstances. Most healthy and long-lasting partnerships kick-off with a mutual good feeling. We feel like we ‘sense’ we have a good cultural fit with the other party. That feeling means that while we don’t drop our guard completely, immediately, we do drop it enough to let the relationship start to flourish and deeper trust build.

Is that ‘sense’ of compatibility something intangible? Or is it based on specific ways both parties behave in their early exchanges? Why are we more inclined to trust some ‘strangers’ than others? And can that help us build great, productive business partnerships by getting them off to a great start?

How to we decide who to trust, and who not, before we’ve had time to get to know them? And how does that affect our ability to build healthy professional partnerships?

Research shows we are more likely to trust strangers that look like someone who has earned our trust before. The opposite is also true. If someone we don’t yet know well looks like someone who has broken our trust before, we are inclined to distrust them.

If we are choosing a taxi driver from a choice of several, or asking someone to watch our bag on a train while we go to the rest room, we are disposed towards placing greater trust in individuals with a physical resemblance to other people who have proven themselves trustworthy to us in the past.

But how would this early ‘trust instinct’ translate into a business context? Yes, personal relationships are also established and make an important contribution. And branding is so important because it is the ‘appearance’ of a company, so influences the early ‘trust instinct’. The impression a company’s website makes on us is often what dictates if we make an enquiry or not.

The ‘appearance’ factor is often why bad experiences in the past can harm new relationships. If a company, or decision makers within the company, have had a bad experience with a service provider in the past, they tend to be more distrustful of all other providers of that service they may work with in the future. Or more broadly, 3rd party partners can be tarred with the same brush and generally be viewed with suspicion.

While understandable, that distrust can also be a bottleneck to future good relationships developing. One of the parties approaches the way they deal with the other with the assumption they have a “what’s in it for me” way of working. Which makes it difficult to establish a “what’s in it for WE”, relationship.

Realistically, to one extent or another, that’s the way most new business relationships start. And the more influential the partnership is to business-critical projects, and the greater the financial investment it involves, the harder that distrust is to overcome. There’s more on the line. Both for the client organisation, and the decision maker, who will be judged on the outcome.

Trusting a critical business partner is a risk, but not doing so a greater one

Why the first key challenge to establishing any healthy and successful business partnership is overcoming distrust is pretty obvious. Any organisation that has been around for any length of time has been burned by “what’s in it for me” partners, and is wary as a result.

But if trust and “what’s in it for We” relationships can’t be established, positive future outcomes will prove elusive. Organisations can be emotionally damaged, just like individuals. But also, just like individuals, that has to be overcome if new, positive relationships are to be established.

So, if just avoiding business relationships with third parties isn’t an option (and it shouldn’t be – growing any business or organisation involves delegation, whether inhouse or to third parties, and the risks inherent in both are similar) if things are to get done, but outsourcing partnerships need to be the right cultural fit and based on transparency and trust to have succesful outcomes, we have to find a way to establish transparency and trust.

If we don’t want to make the initial call on which potential partners to trust purely on instinct, we need a methodology.

A proven methodology for choosing an IT outsourcer….and for IT outsourcers to choose client organisations

A good methodology de-risks most things, I’m sure you’ll agree. It doesn’t guarantee a perfect outcome, but it does guarantee the best chance of one.  Which is a good lead into a  first great starting point for a methodology to back up your trust and transparency ‘instinct’, when choosing any business partner.

Due diligence

It’s amazing how many companies hire employees without always properly checking references. Or even at all. They go on gut instinct and faith. Sometimes it works out, but there are always occassions when a mistake could have been prevented by properly digging into a track record.

When screening potential IT outsourcing partners, even if they come on a recommendation, do some proper due dilligence.  Ask for references and really follow them up and have conversations. It should be reasonably obvious if the references are genuine and not a carefully curated couple of friends or the 1 of 10 clients that’s been happy with the service provided. Speaking to any reference is worthwhile, but pay particular attention to those that represent projects of a similar size and tech stack.

And don’t just ask about the technical quality of the company’s work. What are company’s strengths and weaknesses, are they good to deal with and transparent? You can check out our post on the more tangible criteria to look as part of your methodology for selecting an IT outsourcing partner, such as company size, location, language compatibility, time zone, and, of course, tech stack.

If you speak to three or four references that stand up to scrutiny and you feel the conversations have given you a balanced insight, you will be able to start a proper conversation about working together with an already established base level of trust. That should allow you to be open and transparent about your needs, preferences and limitations. Which gives establishing a healthy what’s in it for we relationship a good fighting chance.

Are YOU also being vetted for suitability as a client?

If  an IT outsourcer you are speaking to presumes a great outcome is guaranteed without digging into the details of if you are a good client fit for THEM as a client, that’s an alarm bell. That doesn’t mean they shouldn’t be keen to get you onboard as a client. That would be a much louder alarm bell. But every well run business is selective in the clients it takes on.  They don’t want every client. They want the RIGHT clients. They know ensuring a good fit is the only way to balance happy clients, who will even become ambassadors and refer new business, with sustainable profitability.

A proactive, friendly, enthusiastic but ‘qualifying’ sales process during initial contacts is a good first sign. If one part of the business is a well-run machine, there’s a good chance the others are too. And vice versa. If a potential IT outsourcing provider isn’t also vetting YOU by asking probing early questions and establishing that you have the right expectations, cultural fit, need a compatible tech stack and will adopt a what’s in it for WE approach to the future relationship, their driving priority is getting your signature . Quite possibly with little thought to whether that’s in both your best long-term interests.

Are you BOTH being upfront with your limitations/business case?

Every IT project has a business case. If it will cost more to create, maintain and iterate on than what it should either earn or save the project sponsor, it should be shelved. The IT outsourcing services needed to execute and maintain the project also have a business model. The service provider needs to be able to pay the specialists that will work on a project, and be left with a reasonable margin.

That’s all very obvious, right? So where can things go wrong? As usual, problems occur if one side of the partnership is worried the other is pursuing their interests at the other’s expense. The client organisation fears the IT outsourcer is padding its margins with its offer. Or the outsourcer feels the client organisation is pushing for an unrealistic price it can’t offer without cutting corners.

How can that situation be avoided? It sounds a little like a therapy session, but what genuinely works, on the assumption both companies are predisposed to a what’s in it for we agreement, is being open and honest with each other. Discuss how a ‘budget no option’ and ‘efficient’ approach would differ and impact the final result.

In our personal relationships, openness and honesty tends to be reciprocated. We’ve all experienced greater willingness to go the extra mile for people who are open with us. The same psychology applies to business relationships. And the same risk to reward ratio. Taking well-measured risks and trusting business partners does mean there’s a chance of being burnt at some point. But the consequences of never trusting anyone in business are the same as they would be in our personal lives.

Baby steps

Establishing real trust takes time and also has to take into account individual qualities. We’ve all got friends and family who we know we can put a lot of faith in with the big things but also know are likely to be late for a meeting or flakey in some other way. Or the other way around. Other friends or family members might be bang on point with the little things, but draw the line at going out of their way for us.

Our early instincts on people might generally be good. But they are never always accurate, right? Most of us instinctively know that, so to varying degrees we hold some things back while establishing not only a deeper level of trust but one that takes into account the personality and qualities of the individual. And we do that by, often subconsciously, testing people in different scenarios and collating data on how they respond to different circumstances.

Establishing healthy, long term business relationships should involve taking the same approach. If possible, start working with a new IT outsourcing partner on smaller, less business critical projects. Speaking from the point of view of an IT outsourcer, that’s just as important on the other end of the relationship. Both sides get a feel for each other, pluses and minuses (there are always both). Based on that, both sides then have a much clearer idea of how to tweak things, and what to have in mind, and discuss, for future, potentially bigger projects.

When people, and organisations, know what to expect of each other in different scenarios, they are ready to put in a lot more. The water temperature has already been tested with a foot. We still have to look out for rocks under the water, but can otherwise happily jump in.

Fluffy nonsense… or a recipe for success?

If you’ve read this whole post, you’ll have reached this point with one of two broad-brush thoughts:

“That’s a lot of fluffy nonsense” or “that makes sense”.

If the former, we’re probably not the IT outsourcing partner for you. And that is absolutely fine. We are not natural friends and allies with everyone we meet as individuals. But everyone finds their natural friends and allies. Business relationships are no different. An organisation that’s not a great fit for us, will fit like a glove for someone else.

We’re a mid-sized, family-run company. We work with some of Europe’s biggest corporations (and start-ups and everything in between), but we’re not a corporation. We’re K&C. We’d love to tell you more about what that means. And for you to tell us more about what’s important for you. Let’s find out together if it looks like we’d be a match for IT outsourcing that works.

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