Is Now the Time for Diversifying Your IT Outsourcing Portfolio?

COVID-19 and related actions have created huge disruptions not only to the economy, but also to the way in which IT services are delivered. Country-level lock downs have forced an almost universal work-from-home model upon the IT industry. Unfortunately, this de-facto standard creates the risk for huge service disruptions to companies around the world.

Short term, companies across industries are scrambling to keep operations stable and prepare for the worst. Longer term this may have an impact on how companies here in the U.S. manage their IT outsourcing portfolio, perhaps opting for more in-house and in-country resources than what they’ve used over the last 10 years. COVID-19 has certainly provided a bit of a warning on the risk of putting all your eggs into one basket.

Mitigating Risk

You can mitigate risks in a way a financial manager would – by diversifying.  Diversification has long been the rule for investment decisions, but many companies using outsourcing have tended to rely on a limited number of geographic regions and related IT providers. This is largely due to the availability of low-cost labor in these regions. In fact, more often the focus has been on the efficiency of the resource supply chain vs. its resiliency.

So, what are the major considerations that companies should look at when re-evaluating their provider portfolio for diversification and risk mitigation? There is certainly a long list, but here are three key areas that rise to the top:

Location Risk

Given the large amount of work that’s been shifted overseas, the term ‘outsourcing’ has almost become synonymous with ‘offshoring’. This is due to the availability of highly skilled, low cost labor in other countries outside of the U.S. With that lower labor cost comes areas of risk that need to be factored in for each location being considered:

• Infrastructure – this is more than just technology and communications infrastructure, which is critical.  It also includes healthcare infrastructure and local community infrastructure.  Weaknesses in any of these areas may inhibit performance, especially in times of crisis or natural disaster.
• Political/Economic stability – in recent years, there’s been an increase in terrorist activity, trade disputes and political tension around the globe. Locations should be evaluated for the potential risks in these areas.
• Security – depending on the country being considered, there can be differences in the rule of law that affects intellectual property protection, or the susceptibility of data breaches and loss.

Agility and Resilience

The COVID-19 pandemic has magnified the issue of needing to stay agile and operate with resilience.  Businesses should have an optimistic outlook, but be prepared for anything. In that vein, in addition to having the necessary technical skills and capabilities, providers need to show these characteristics:

• Contract flexibility – contracts by there nature are meant to protect mutual business interests, but that doesn’t mean they should be one-sided or ‘one size fits all’. The trend is toward shorter-term contracts, with flexible scope.
• Subscription or ‘as-a-service’ models – just as with software, the next framework for IT services is subscription based. This allows scaling up and down as the customer needs more volume, when the customer needs less volume, or when the customer has new needs.
• Business continuity and disaster recovery preparedness – it should go without saying that any provider, especially those with remote delivery capability, has a well-thought out and tested plan for business continuity and disaster recovery when something like COVID-19 happens again.

Cost Effectiveness

With an economic downturn likely (hopefully a short one), cost containment will be even more critical.  Just as critical is the need to balance cost and risk. While labor is a major cost component for IT outsourcing, there are other hidden costs that need to be evaluated. Depending on the location of delivery, there can be significant costs associated with things like:

• Currency fluctuations
• Additional resources needed for offshore project management oversight
• Visa or travel restrictions and related resource availability
• Time delays due to time zone, language and culture

Providers need to be evaluated on not only hourly rates, but the other hidden costs or risk factors that may be inherent in their specific delivery models.

Right now, and in the short term, companies need to do what’s necessary to ensure stable and profitable business operations. That means making whatever resource and process adjustments are needed, with minimum disruption. As the COVID-19 crisis begins to subside (which it will), it makes sense for companies to revisit their IT outsourcing strategy to better balance cost savings with risk mitigation. This means balancing the use of in-house employees, local contractors, on-shore delivery and offshore locations.

Sparq is arguably the leader in onshore or domestic software development outsourcing.  This model strikes the right balance between cost savings and risk mitigation. With remote development centers exclusively located throughout the United States, Sparq leverages untapped, highly skilled technology talent in Middle America cities to provide world-class solutions to our clients. Our unique model eliminates the obstacles of time zones, distance, language and geopolitical risk.

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About the Author

As Chief Client Officer for Sparq, Scott Monnig is responsible for one of our core values, ‘Change the Experience.’ He and his team are client-facing, colleague-centered and delivery-focused to ensure that our clients are delighted with our services. Scott works across our Sales, Sales Engineering and Delivery teams to ensure common practices and drive rigor that results in excellent outcomes.

With 30+ years of hands-on technology leadership experience, Scott has led high-performing teams, technology groups, and business divisions through dozens of enterprise initiatives, systems development and digital innovation. He has also led organizational transformation initiatives with a recent focus around Agile, DevOps and Cloud transitions driven by rapidly growing digital demands across a number of industries and organizations.

Scott is a graduate of the University of Missouri, where he earned a B.S. in Computer Science.