Tom Godden and Phil Le-Brun
Where does passion and innovation come from in your organization? From the top? From a particular department or individual? From a supplier? We would hazard a guess that it’s probably not the latter—so why do many companies’ investments imply otherwise? We believe there is an opportunity to reassess how outsourcing partners complement the demand for faster innovation and internal agility. In this post, we give some background on outsourcing and the challenges it creates for tech organizations. In our next post, we’ll discuss specific actions we would recommend to combat these challenges.
As a discipline, technology began relying heavily on outsourcing during the 1990s dot-com explosion. By the 2000s outsourcers were a de facto part of most enterprise’s technology portfolios. C-suites typically saw technology as a commodity. Suppliers’ hyped promises about reducing costs and easy access to skilled labor resonated with them. Enterprises could focus on their core business rather than investing in building technology capabilities. It was (in theory) quick, cheap, and proven, as everyone else was doing it.
Technology has permeated every facet of our lives over the last two decades, and it is critical to every business regardless of industry, geography, or company size. It is both an enabler of the present and the fuel for the future. While few would deny this, there is still a large degree of skepticism and fear about technology, driven in part by a long history of unfulfilled promises. In light of this, many organizations still treat technology as a cost to be managed rather than embrace technology to deliver new business models and capabilities. This polarization is further reinforced by stories of how agile many of the industry leaders have become, creating a chasm that other organizations struggle to close.
So how does outsourcing fit with both this exasperation and the promise of a better future? The adage “don’t outsource what you don’t understand” has often been ignored. Many factors—such as the inability to keep up with demand, cost pressures, overpromising to both internal and external parties, and senior leadership’s understanding of technology—combine to create an environment in which work has been pushed out of the organizations to others. A significant portion of these contractual relationships are transactional, designed for a world in which requirements and customers were predictable: “I give you requirements, you tell me how long and how much, and then you deliver me some software in a few months/years time.” This artificial predictability is described in terms of detailed costs, service-level agreements, and processes. It also feels predictable to the outsourcer, protecting them from changes in direction and requirement ambiguity and providing consistent long-term revenue.
This would be great if our world was predictable, but it isn’t. This legacy model does not align with the trends driving industries today: agility, design thinking, innovation and experimentation at speed, digital transformation, and data-driven discovery. Instead, in the legacy model we find ourselves struggling with inflexible contracts that prioritize risk mitigation and cost savings, with teams that are siloed and bound together with rigid and complicated processes focused solely on implementing orders exactly as specified. Value as an outcome is demoted in preference to false predictability.
Often, talented outsourcers are not expected or allowed to think outside the box to pursue optimizations or increase business value. In fact, the traditional enterprise-outsourcer relationship discourages this type of behavior. Quite simply, traditional outsourcing was designed for situations that would not change. The problem is that Agile has taught us to expect, embrace, and enable change. Existing relationships based on fixed work orders or, worse still, staff augmentation discourage taking risks.
Digital transformations create new opportunities and new challenges across every conceivable business. One of the greatest places for growth is the talent pool. The reality is there is a shortage of people to meet the growing demand for technology professionals, and we often need an improved outsourcing strategy to compensate for this. We know that mechanistic processes for technology development don’t work within companies, so why do we assume they will work with our outsourcers? This problem is further encumbered by co-employment type legislation, where two companies both have rights and obligations and therefore can be viewed as the employer, which makes true agile work between organizations difficult.
While outsourcers play a vital and important role in today’s digital economy, by providing expertise, bandwidth and brainpower, their business model is challenged by the growing demand for agile ways of working. The authors would not have been successful without our outsourcing partners, but we also would not have been successful without rethinking our outsourcing model approach. In our second blog post in this series, we will discuss specific changes you can make to your outsourcing model in the age of Agile.