Welcome to Peak Iterative

August 29, 2019

Anna Frazzetto’s article from Forbes.com on July 29, 2019. 

Over the last decade, IT outsourcing has evolved quickly. What once was a model focused on increasing efficiency and lowering costs by engaging highly affordable offshore resources has now become an essential pathway to tech innovation and strategic IT talent. Rather than engaging outsourcing firms for software and hardware maintenance and help desk support, businesses are looking for outsourcing and offshore partners to support (and even oversee) complex digital initiatives and emerging technology projects in areas like cloud, data analytics, blockchain and artificial intelligence (AI).

For businesses and IT providers, it means we’ve hit a new level of outsourcing engagement in which proximity and pace matter more than ever. I call it peak iterative — a time when the road maps for outsourced IT are often incomplete while the expectation for innovation has never been higher. Outsourcing centers are looking more and more like agile development hotbeds where transformative technologies and systems are built iteration by iteration. Both procurers of IT outsourcing services and providers of them are operating in surprising new ways. Here’s how and why.

The Pace Quickened: First Matters

The pressure of being first to market, which once sat with internal research and development (R&D) teams, is now shared by many outsourced IT solution providers. Why? Because they are helping to design and build the mobile apps and digital engagement tools that can distinguish a business in the marketplace today. The need to be the first to innovate and disrupt has meant that many outsourcing providers have adopted agile and iterative development in order to move quickly and in lockstep with the business organization.

For an outsourcing engagement, that means much more frequent contact between IT teams and outsourcing resources. In addition, the outsourcing team might be partnering with other areas of the business. My company’s 2019 CIO survey that we worked on with KPMG found that almost two-thirds of organizations allow business-led IT investment. Rather than the IT team securing and leading an outsourcing partnership, business teams could be doing that work. For example, customer service teams might work with an outsourced development team to redesign or enhance the digital customer experience. This dynamic in which business groups play a key role in digital innovation, or even lead it, is increasing and creating more entry points for IT outsourcing.

Proximity: Teams Need Access

From what I have seen, businesses based in the Asia-Pacific region have been quicker to embrace the outsourcing of sophisticated and proprietary technology solutions than many of their U.S. counterparts. Part of that may be due to proximity. APAC is the heart of global IT outsourcing where both the technology talent and the outsourcing infrastructure are long established. For businesses in Asia or Australia, outsourcing to a provider in the APAC region still means easy access to the technologist working on the solution. Timezone conflicts are limited, and that is important when using an iterative approach and racing to be first to market.

As more businesses look to outsource some or part of their strategic IT projects, distances to outsourcing providers may begin to shrink. Across the United States, there has been a rise in the number of onshore outsourcing providers catering to American-based companies. That is a trend reflected globally in recent years as businesses increase their investment reshoring (bringing offshore activities back onshore). For example, in 2018, the Everest Group’s Global Locations Annual Report found that 52% of newly established setups of the top 20 global service providers were onshore from 2016 to 2017. However, from 2012 to 2013, that number was only 32%, demonstrating the trend toward onshoring and reshoring.

While some of that growth can likely be attributed to a political backlash against outsourcing in general, the change in the kinds of project now outsourced is also a factor. Business teams want to engage and collaborate with their technology partners more than ever. If those partners are in-house or on an outsourced team, it doesn’t matter. The collaboration is key and facts are facts: Being in the same hemisphere makes iterative collaboration much easier and much faster.

Adaptation Required: Road Maps Are Incomplete

There was a time when IT outsourcing, even development, was fairly simple. The client needed a box built (a piece of software, a simple tool) and the outsourcer built that box to specific requirements. That was it. Now AI, RPA, blockchain and even quantum computing have changed all that.

Today, many businesses know they need to understand and work with these technologies to avoid losing ground. However, many don’t know exactly how or what their strategy should be and are looking to their outsourcing providers for answers. Why? Because outsourcing providers are now on the front lines of building with these tools and are employing the professionals with experience in the technology.

As the industry moves from a pure money-saving mentality to value-generation model, outsourcing providers are becoming strategic partners in disruption, working with tech and business leaders to analyze markets and assess customer and organizational needs. They help shape uncompleted road maps by building IT solutions iteration by iteration, pushing boundaries and advancing business strategies.

Welcome to Peak Iterative on Forbes.com