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Is there room for IT outsourcing?

Updated: Jul 28, 2023

In our analysis of the IT outsourcing industry we take a look at its past, present and future. We will cover how it started, the benefits and challenges and what the industry came to be today. Finally we will offer an educated prediction on what the future might bring for this industry and a word of advice as to how to prepare for that future.

A word of history

In a busy household with three little children it is very difficult to keep the house organized and clean. Instead of spending time and effort cleaning the house, the parents decide to hire a housekeeper once a week. While the house is getting cleaned, they can enjoy the time with their children. The family needs to pay for the cleaning service but benefits from extra spare time. The housekeeper gets paid for providing the service they are expert in. At the end of the day both sides benefit from this deal and that is the purpose of outsourcing.

Now let’s imagine that this busy household is your business company. You would need a lot of time and skills to be able to manage everything by yourself. A much easier solution is to hire an external team of specialists so you can focus on the core tasks of your business.

For example hiring a professional accountant to do your taxes once a year, hiring a marketing company to take care of your social media, a HR company to take care of recruiting services, or an IT company to implement software solutions and solve any technical issues.

Outsourcing in the IT industry is exactly what we want to focus on in this article.

Where does outsourcing come from?

Outsourcing was born in the ‘80s. IT companies in the United States started to think about how to get the job done at lower costs but still with high quality and they came up with the idea to reach out to countries in Asia and Latin America, especially Mexico to handle part of their workload. They saw many benefits such as:

  • Reduced costs

  • They didn’t have to hire new employees and pay for benefits

  • Same time zone

  • Good language skills

After a while the demand for skilled workers in Mexico grew but there were not enough talented people to meet it, so the job positions started to be occupied by recent graduates with no working experience. They had to learn everything from zero all by themselves because they did not have a senior mentor.

Results were not great; there were lots of issues and no solid architecture. For that reason in the past five years there has been a boom in in-house hiring again because companies had lost confidence in outsourcing agencies.

But as with everything, in-house teams also have their disadvantages. The principal one is related to increased expenses. An employee typically costs the company close to two times more than their actual salary due to some hidden associated costs (as explained in this article about The hidden costs of employees).

Situation nowadays → instability. Do people really want that?

Nowadays the majority of companies outsource some part of their workforce, many of them abroad. Companies are going back to outsourcing their teams but this time they are looking at freelancers instead.

Home office became a big part of our everyday life, especially after the pandemic in 2020. Productivity started to improve.

The freelancing industry is booming at the moment because companies are willing to pay high salaries. But that comes at a cost, namely:

  • No guaranteed long term work

  • No career growth opportunities

  • Uncertainty about job duration - such engagements typically end spontaneously.

  • No benefits, including health insurance, retirement, etc.

  • Overworking because they are at home all the time and there are many distractions

  • Travelling

  • No clear division between work and home

A glance into the future

More and more freelancers will start dropping out of projects if they feel they are reaching the end of their engagement leaving the work unfinished. This will cause the business to have to recruit for that position again. When they finally find someone to continue the work, the new developer will need to go through a learning curve before they are up to speed with the project.

Meanwhile the company will lose money, miss deadlines and release dates, and waste immense amounts of effort to mitigate the situation.

Is there a silver lining to all this chaos?

With so many options, making a decision is hard. Let us give you some advice on how to figure out what is the best for you.

Considering contracting with a bigger company, you must bear in mind the amount of employees and projects they have. As the demand is higher, they usually don’t mind losing one or two projects.

The support is usually worse because there are many employees who often just ‘ping-pong’ you from one specialist to another. Surely you have already experienced that before…

It is very difficult for them to keep an overview over all the projects.

Bigger companies also contract with many customers at the same time which does not allow them to spend more time getting to know each other properly. You can await a less friendly environment and impersonal approach.

The atmosphere in a smaller company looks different. The projects are taken seriously and a closer relationship with a customer is guaranteed.

In a smaller company you will get personal attention and direct communication. You will also experience a more friendly environment. The support that a small company provides is better and reliable.

Our advice to you is…

Make sure you find a trusted IT provider that you can always rely on…

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