In previous blogs, we have discussed why companies outsource, and when they might want to nearshore. In this blog, let’s talk about the six use cases for outsourcing/consulting. These are:
- Deploy New Technology
- Support Planned Initiatives
- Support Unplanned Demand
- Prototyping and Proof-of-Concepts
- Multi-Level Operational Support
- Major Projects and Legacy Modernization
We will briefly discuss each of the scenarios and the dynamics that are involved.
- Deploying new technology – This usage scenario happens to all companies, but there are two specific situations that are of interest. First, large companies who are making a change in direction in a business technology. They need to reload with new skills to support the new technology, but it is hard to turn the technology ship quickly. So companies need to bring on expertise from the outside to augment, work with, and mentor the current technical teams.
The second type of company is one that is growing fast. They are implementing new technologies rapidly. In this situation they will probably leverage the outsource firm to be the technology expertise and let their internal teams be the business domain experts.
In both situations, the advantage is that they can acquire the technical expertise rapidly. It is similar to a leasing model. You need something quickly, but you do not want to buy until you know it will meet your needs. Or in this case, know if the need for technology expertise will continue. It allows you to move more quickly than trying to get an internal team ready to implement.
- Supporting Planned Initiatives – This usage scenario usually occurs when there is planned stopping and starting, burst, or seasonality. For consulting companies this is harder to manage because they will be starting up and ramping up several times over the course of a project. Therefore, it can be a more costly option unless there is an appropriate level of forecasting and planning.
There are two types of engagements where this scenario is usually used. The first is when there is a large project development and/or deployment. Rather than hire additional resources for a year or two, companies will engage to add resources to fulfill the project. The other type of project is when companies have planned fluctuations in demand (and example might be a call center for Christmas Cookies). In this case, they will use outsourcing to level out the supply and demand curve during this flex time(s).
The advantages to using an outsourcing model for this scenario is that you can reuse workers from season to season, keeping the knowledge and reducing the amount of training needed. Rather than hiring and training a temporary workforce every season, you can leverage the outsourcing company to shift experienced resources to meet your demands. It also allows you to keep the amount of internal resources to a minimum.
- Support Unplanned Demand – In this scenario the company needs the partner to help with daily fluctuations and peak intervals in demand. These are usually break fix and backlog type issues. They tend to be small in nature, have multiple occurrences, and require immediate attention. Most companies will handle this scenario by purchasing blocks of hours and minimum monthly service contracts which can be used as needed.
The main advantages of using this type of engagement is that you have faster response times, lower risk due to capacity issues, and your key resources can focus on critical, value added tasks rather than support and maintenance.
- Prototyping and Proof-of-Concepts – POCs and prototypes can be costly, have multiple failures, and require new skill sets. Companies will use outsourcing to build POCs to protect themselves from the cost of building an infrastructure prior to deciding to proceed with the idea or product. Companies also want to reap the benefits of outsourcing companies who have specific expertise in building rapid prototypes.
These companies have processes for shortening the R&D cycle and developing the product, system, or component. Large companies may want to use outsourcing prototypes as a way to speed up getting a product to market. Smaller companies may look at this model as a way to get new expertise while lowering the cost to prototype.
The advantages of this approach is that you get expertise now, you do not have to make long term infrastructure investments before you decide to proceed, and you gain the knowledge of firms who are experienced with creating prototypes. This way, the company gets the expertise it needs, without the long term commitment.
- Multi-Level Operational Support – In this model a customer will engage with an outsourcer to monitor and manage a department, function, or system. These types of agreements are managed by SLAs and are typically more complex and multi-year arrangements. Companies will engage in them to lower costs and to free up their internal resources to work on more strategic activities.
These types of support agreements are most often made with large corporations with very large IT organizations, or they are made with very small companies with little or no IT help. Mid-sized companies should take more advantage of the benefits of this type of arrangement.
Advantages for the operation support model are the lower cost and the ability of the internal teams to work on more strategic projects.
- Legacy Modernization – Legacy modernization is a unique type of engagement. While it is most similar to planned usage, modernization projects typically have their own lifecycle. The lifecycle will typically start with support, then move to operational maintenance, then move to planned usage as a project launches to replace the system. These projects are typically part of an overall modernization plan where multiple applications are systematically modernized and the old systems are retired. Legacy modernization projects are usually for companies who are mature and have been established for at least 15 to 20 years.
The advantages of having offshore companies work on legacy modernization is that it allows you to train the internal staff on newer technologies, while the outsourced staff works with the older technology. Additionally, these are typically long and costly projects, so working with outsourcing companies should lower the overall cost of the engagement. Finally, there are many outsourcing companies that have experience and expertise in modernization type projects.
In summary, there are six scenarios most often used to justify using outsourcing. When determining if you would like to outsource, you must determine if any of these scenarios meet your current business needs and you have projects that meet these criteria. Here is a diagram that shows the six: So that is all for this blog. I hope it was helpful and informative. If you have any questions, comments, or input, please contact us at firstname.lastname@example.org. We welcome all feedback. Until next time, I wish you health, happiness, and prosperity.