Expert knowledge | March 12, 2020

Which symptoms mean you need multi-sourcing? Minimizing IT outsourcing risks

The recent outbreak of Covid-2019 in China or the Crimea crisis involving Ukraine and Russia are just two examples of how unexpected events can affect the global economy, and your business. China and Ukraine are two of the most popular outsourcing destinations, and since the role of IT outsourcing in digital transformation is increasing, it is worth considering how to mitigate potential business risks.

   

Multi-sourcing – more than outsourcing

Nowadays companies often cooperate with more than one external IT services provider to ensure flexible access to talents. Multi-sourcing strategies can include:

  • Multiple sourcing – using the services of several providers, e.g. providers from multiple countries
  • Dual sourcing (double sourcing) – using the services of two IT providers, e.g. in a nearshoring model.
  • Cross-sourcing – using the services of multiple IT providers, who are responsible for particular services (this type of cooperation is often used in manufacturing to ensure the suitability of the supply chain) 

Building a digital strategy is not only about identifying the best technologies. It is also, and maybe even more importantly, about dividing responsibilities wisely among IT project teams to manage potential risk, avoid service disruption and ensure backups. It is worth considering multi-sourcing as a digital transformation strategy in 2020. Let us explain why.

Main reasons for multi-sourcing

The services of multiple IT providers can help in mitigating IT outsourcing risks, related e.g. to IT talent shortage or geopolitical instability.

IT talent shortage

We all know how valuable IT skills are. In the UK, for example, 40% of organizations from the public sector admit they lack the skills to adopt digital transformation solutions. IT talent shortage, however, fosters cooperation between multiple IT outsourcing companies. Their employees often create cross-functional teams consisting of developers, software testers and business analysts. Multi-sourcing becomes a natural option in hiring IT specialists. Which in particular? 37.6% of hiring managers indicate that full-stack developers will be most in-demand in 2020. According to 2020 HackerRank Report, the most in-demand talent pool will be the following:

  1. Full-stack developers
  2. Back-end developers
  3. Data scientists
  4. Front-end developers
  5. DevOps engineers
  6. QA engineers

Geopolitical aspects

Geopolitical aspects can also play a significant role in building digital strategy for 2020. According to E&Y research, political risk rose between 2016 and 2018 and is currently at a post-World War II high. Recent years showed the impact of political tensions on the economy – one example being the impact of the annexation of Crimea, which led to bilateral economic sanctions between European Union and Russia, on the global market. Or tensions between Iran and US in 2019, considered as one of the geopolitical risks keeping market strategists awake at night.  

Gartner predicts that companies need to review their sourcing strategies in terms of potential geopolitical tensions. There are still many doubts in terms of the post-Brexit impact on the technology sector in the UK. Will the IT skills gap deepen? What challenges will businesses encounter in implementing disruptive technologies once Brexit is completed?

Companies will have to learn how to manage geopolitical risks. Hiring specialists from a stable country may help in minimizing potential risks, e.g. inaccessibility of services. Due to escalating trade conflicts, political tensions and uncertainty related to their impact on IT services, business representatives should consider implementing multi-sourcing strategy.

Financial aspects

The outbreak of coronavirus in 2019 and 2020 has not only endangered people’s lives, a number of which have been lost, but also affected the global economy. At the end of February 2020 the performance of major market stocks was the worst since the huge financial crisis in 2008. Multiple manufacturing plants have been closed globally due to the spread of the SARS-CoV-2 virus, which resulted in delivery slowdowns or stoppages worldwide. For example, Nissan could not source parts from China, which forced the company to temporarily shut down one of its factories.

Not only the automotive industry was affected. There was also an impact on tech companies, including giants like Apple, Samsung, Microsoft and Google, which had to temporarily close some of their offices, factories and shops. Many companies needed to limit their business trips and cancel business meetings. At the same time, the role of the home office increased as several companies, including the giant from Cupertino, started to encourage their employees to work remotely. This case may serve as a precedent and change the way we work forever.

However, the impact on IT outsourcing companies providing services in software development is minimal thanks to the remote services they offer. Such companies have vast experience in managing dispersed teams as well as in cooperating with third parties from distant locations. The IT branch is vulnerable to a different kind of virus attack, though, but this is not the subject of today’s article.

Multiple sourcing in IT – pros and cons

Pros:

  • Flexibility – while engaging multiple providers, business can react proactively to unexpected situations in the project.
  • Service stability – minimized risk of service disruptions.
  • Scalability – it is possible to engage additional specialists de,pending on the contract model, e.g. Time and Material.
  • Better know-how – every specialist brings the knowledge and unique know-how of their organization.
  • High quality of the product – stakeholders compete to provide the best possible services,  which results in delivering a better product.

Cons

  • Communication issues – while engaging multiple resources, some communication issues may occur, i.e. related to differences in corporate culture. Adopting Agile methodologies can improve communication significantly.
  • Business trips – there might be a need to plan business trips more often, which can increase costs. Engaging providers from a similar location can be helpful.
  • Complex management – companies with no previous experience with IT outsourcing may encounter challenges in managing dispersed employees.

Summary

For companies who already take advantage of IT outsourcing services, it might be easier to adopt a multi-sourcing strategy. How to start? It is a good practice to engage one specialist and observe the results and value he brings. This way business can ensure that the model works and observe what the benefits for the organization are. In JCommerce we observed that the kaizen method, the method of small steps, works well in IT outsourcing. Our clients often hire one or two specialists and then cooperation evolves. This is how we know it is more than outsourcing.

Maciej Smulczyk

Maciej Smulczyk

Business Development Manager

At JCommerce, he is responsible for business development in Central Poland region. He has many years of consulting experience in educational, recruitment and outsourcing business processes. In his private life, he’s a fan of basketball, hockey and baseball from overseas.