Three ways to triumph in the IT talent tussle
Access to resources and talent remains a top driver for why organisations are using outsourcing, with 57 percent of organisations in our IT sourcing study with Whitelane quoting it as a driver. This is marginally up from 56 percent in 2022, and significantly up from 36 percent in 2021.
Outsourcing is no longer mainly about cost reduction
Prior to the COVID-19 pandemic, there was a focus on outsourcing as a way to reduce cost (a driver for 71 percent of organisations in early 2020). This may have helped some businesses to survive the pandemic. Since then, although cost reduction remains a factor for over half of organisations looking to outsource, growth and access to talent have assumed a similar importance – changing the type of relationship needed with suppliers.
Challenges meeting candidate expectations when hiring full-time employees
Private sector clients tell us they are finding it difficult to meet changing candidate expectations, including higher salaries, flexible working, strong reward and development programmes, and the need for varied and interesting work. Candidates often appear more attracted to consultancies, systems integrators, and technology service providers who have greater ability to meet these needs.
The picture is even more stark in the public sector, with access to resource/talent being a driver for 83 percent of respondents considering outsourcing – far more than any other reason. Moreover, time-to-hire delays in the public sector leaves IT talent at risk of being snapped up elsewhere.
Globally distributed delivery models, nearshore growth, and automation
In response to these challenges, organisations are increasingly looking towards globally distributed delivery models, with offshore and nearshore talent sourcing intentions rising (33 percent and 27 percent, respectively), compared to just 19 percent of organisations who intend to keep work onshore.
This, however, is not without its challenges. Those using offshore outsourcing have experienced high levels of attrition at service providers. The challenge has been particularly acute in India, where attrition levels have reached 20-40 percent, and even 100 percent in one reported case. This has driven increased interest in nearshore locations to reduce reliance on offshore technology talent. Yet, with demand outstripping supply in nearshore locations, automation is another option for organisations to pursue.
What does all this mean?
Headwinds in the wider economy mean that the need for transformation has never been greater. However, the war for talent continues to be intense, leading organisations to search for solutions and optimise their use of sourcing. These include considering hybrid delivery teams, thinking about how automation can help, and ensuring that contracts are regularly reviewed to make the most of skills transfer.
Optimising sourcing relationships to thrive in an increasingly complex world
To optimise sourcing relationships and secure access to talent and resources, there are three key steps for leaders to take:
1. Consider hybrid delivery teams with a range of nearshore and offshore delivery options
This approach mitigates risk from country-specific talent availability and volatility challenges. It is imperative for organisations to ensure core operational and delivery processes are adapted to suit new ways of working, and for nearshore and offshore teams to be treated as integral to the success of the organisation, whether outsourced or insourced. Where clients are choosing to insource to nearshore and offshore locations, feedback confirms it is vital for client leadership to understand and account for cultural differences, expectations, and career drivers, and to share and embed this across the entire organisation.
As one client told us: ‘It is critical for our leaders to visit our offshore offices to fully appreciate the talent we have, and the subtleties and differences in ways of working that achieve the same high-quality outcomes. We are told by our leaders that they didn’t understand what they had until they visited and spent time at our global talent location.”
2. Consider build-operate-(automate)-transfer models, where options to move services in-house are an explicit part of outsourcing contracts
For this to work well and achieve manageable levels of attrition, it is vital that ‘returning’ operations feel integral to the business with equivalence of career development, and recruitment of experienced local leadership. The automation element also reduces reliance upon technology resources, making some transitions easier.
3. Ensure that skills transfer to in-house teams and retention of IP are explicit elements of outsourced contracts, and actively manage these
Both require regular, robust reviews if clients are to get the best out of arrangements and avoid the challenge, cost, and disruption of last-minute negotiations toward the end of arrangements, where relationships may not be as positive as they once were. These regular, robust reviews will avoid or reduce client reliance upon vendors, protect key knowledge and IP, and help keep client organisations in control. In the most productive examples, this has included supplier representation in client governance teams.
Beyond this, and with the skills shortage likely to remain for some time, organisations must continue to focus on creating the right value proposition to their employees. The opportunity to work alongside and receive skills transfer from suppliers may be part of this. And, for public sector organisations specifically, this can deliver broader benefits of employee stability and development.