September 13, 2023
Outsource your way to a better, most cost-effective digital transformation.
We may be in the midst of an economic downturn, and IT budgets have certainly tightened up after the massive spending spree required during the pandemic years to shift businesses fully online.
But spending on so-called digital transformation projects continues at pace and for a very good reason. These projects, executed correctly, improve an organization’s revenue and lower its costs.
Last month, management consulting firm McKinsey estimated that even for a traditional slow to change industry like equipment manufacturing, cloud-enabled digital transformation can boost a company’s earnings before interest and tax (EBIT) by 5 - 8%.
But the same firm also published a survey last year with a telling finding - most organizations realize only a fraction of the value from a digital transformation that they expected. The average across all respondents when it came to full revenue benefits was just 31%, while 40% estimated they’d achieved the maximum cost benefit.
Source: McKinsey & Company
The problem lies in a widespread misunderstanding of what digital transformation is. McKinsey, quite correctly describes it as:
“…different from regular business transformations, in both small and big ways. For one thing, business transformations usually end once a new behavior has been achieved. Digital transformations, on the other hand, are long-term efforts to rewire how an organization continuously improves and changes (and that means really long term; most executives will be on this journey for the rest of their careers). That’s because technology is not only becoming further integrated in business but also constantly evolving.”
We agree with that definition. Digital transformation is a perpetual process that requires a company strategy and culture that enables constant iteration and improvement to maintain competitiveness, rather than discrete, one-off transformation projects.
But we disagree with McKinsey’s next claim:
“No company can outsource its way to digital excellence. Being digital means having your own bench of digital talent working side by side with your business colleagues.”
Are you overwhelmed with short-term priorities?
At Accelerance, our experience tells us that the unrealized potential of digital transformation that is the dissatisfying norm for most organizations, is often down to the fact that they didn’t take advantage of outsourcing to help them get there.
Of course it is important for any business to develop its own in-house digital talent, which is strongly aligned with the management’s strategy and objectives. But the reality we see every day is that most organizations are simply ill-prepared to implement the digital transformation envisaged by their leaders.
There are a multitude of reasons for this. The key one is the difficulty in securing the right in-house talent. Sure, the tech labor market has softened, but the best, highly-skilled software architects, engineers, project managers, and UX designers, still command top dollar. They are hard to recruit and retain.
The other difficulty we see is the ever-present tension between addressing the immediate needs of the business, and taking a longer-term, strategic view of how the business needs to transform to stay ahead of the competition in the mid to long term.
Management may want a focus on the latter, but the in-house development team is usually preoccupied with the former, fighting fires and responding to requests from the business for upgrades, fixes, new features, and modernization.
If you view outsourcing as merely tapping the resources of a body shop to bolster your software development ranks at cut-price rates, you’ll never see its true value in enabling digital transformation.
Outsourcing in 2023 is a world away from that stereotype. The Accelerance Global Network of partners spend much of their time assisting businesses achieve the expected gains from their digital transformation efforts. It’s a simple recipe for success. The best software outsourcing firms in the world offer expertise, skills, methodologies, and innovative approaches that most businesses simply can’t muster in-house by leaning on their own tech teams.
To summarize, here are six key ways outsourcing software development can play a significant role in helping organizations realize more value from their digital transformation:
- Access to expertise: Outsourcing allows you to tap into a global talent pool of skilled professionals and specialized teams. You can leverage the expertise of software development firms with experience in the latest technologies and trends, reducing the learning curve for your in-house team. Our outsourcing partners stay up-to-date with emerging technologies and industry best practices. They can introduce new technologies, tools, and methodologies to your organization, helping you stay competitive on your digital transformation journey.
- Faster time to market: Outsourcing can accelerate the development process. Experienced outsourcing providers can quickly assemble teams, set up infrastructure, and start working on your projects, reducing time-to-market for new digital solutions. Transforming at speed enables you to stay a step ahead of your competitors.
- Cost savings: Outsourcing can be cost-effective compared to maintaining a large in-house development team. You can avoid the costs associated with hiring, training, and retaining skilled professionals, as well as overhead costs like office space and equipment.
- Scalability: Digital transformation often involves scaling up or down based on project requirements. Outsourcing partners can provide flexibility to adjust the size of development teams as needed, allowing you to respond to changing demands efficiently. In an uncertain economic climate, that flexibility will serve you well.
- Focus on core competencies: By outsourcing software development tasks, your organization can free up internal resources to concentrate on core business functions and strategic initiatives, such as defining digital transformation strategies and managing change. By handling routine development tasks, outsourcing also allows your in-house teams to focus on innovation and the strategic aspects of digital transformation, such as conceptualizing and implementing disruptive technologies.
- Risk mitigation: Outsourcing providers often have established processes for risk management, quality assurance, and compliance. This can reduce the risks associated with software development projects, ensuring that they align with your digital transformation goals.
Outsourcing has moved beyond the business process automation that dominated transformation projects 15 years ago. A global ecosystem of partners has emerged to address the exact issues that prevent businesses from achieving their transformation goals.
The key is finding and partnering with the right software outsourcing firm. Our guide Due Diligence in a Disrupted World: Finding the Right Technology Partners and Building Business Resilience is a great place to start if you are considering seeking assistance with your digital transformation.
Check out my previous blog outlining some of the key aspects of software and technology development that are being outsourced to our partners every day. The possibilities are nearly endless. Get in touch to find out how our partners, handpicked from among the top 1% of software firms in the world, can help you actually deliver the value your digital transformation plans promise on paper.
