Outsourcing is not just about collecting cheap remote talent. Even if it’s truly cost-effective, most successful companies realize that outsourcing brings innovation and is well-suited not only for operational tasks but also for developing core products. To date, 64% of companies outsource software development in a traditional way and many of them are going to embrace disruptive technologies and hone their strategies towards outsourcing.

Brief History of Outsourcing: From the Beginning Till Today

When did outsourcing begin?

The history of outsourcing dates back to 1989. The first company to outsource was Eastman Kodak with their revolutionary decision (for those times) to outsource the IT systems. The company’s leadership were the pioneers to realize they don’t necessarily need to own all the processes and data. Kodak was soon followed by other companies which resulted in business process outsourcing flourish till today.

Two main reasons urging companies to outsource were: cutting costs and freeing up resources to focus on the core functions. The companies tended to engage third-party vendors for certain activities and in such a way focus on core services. Another great reason for outsourcing was just the fact that companies couldn’t afford to hire full-time employees inhouse. No matter what the reason was, over time business leaders realized that outsourcing — if organized well — can be really efficient and may directly improve customer satisfaction.

How outsourcing evolved over time?

Outsourcing in today’s understanding started as a pure business process outsourcing with booming BPO service companies providing accounting and finance, human resources, call center and other functions. The concept of BPO soon broadened and took a variety of forms: end-to-end solutions, staff augmentation and others.

Today, in 2021, outsourcing is the strategic decision to establish long-lasting partnerships with outsourcing suppliers to enhance the service or product and win the competition. And the main reason for outsourcing in 2021 is not cutting costs, but increasing innovation and winning the market.

Fats facts about outsourcing:

64% of all companies outsource their entire development process

66% of medium/large businesses outsource software development

37% of businesses with up to 50 employees outsource software development

43% of U.S. companies are outsourcing jobs from the IT industry

78% of businesses feel positive about their outsourcing relationships

Outsourcing Strategies – Which One is Popular in 2021

Outsourcing as a business strategy has been embraced by the majority of businesses globally. In the USA only, over 300,000 of jobs are outsourced annually.

The latest offshore data reveals that IT is the most widely outsourced sector, with application and software maintenance (54%) and data centers (40%) being the leading outsourced functions.

For 46% outsourcing provides access to a skilled workforce that is not available on the local market. The US and European companies choose IT outsourcing in Ukraine due to the country’s vast tech talent pool of highly skilled tech professionals.

Severe skill-shortage affected 54% of companies. 82% of workers expect digital transformation to transform their work in the next three years, but only 3% of executives plan to invest more in skills development programs. That said, building offshore strategic partnerships remains the most effective outsourcing strategy for businesses in 2021.

Disruptive outsourcing is the future

Technology adoption is expected to accelerate in the coming years. In addition to big data, cloud computing and e-commerce, new technologies are emerging, such as robotics, encryption and artificial intelligence. Therefore, the outlook for the future of outsourcing is also changing. Company leaders show interest not only in employee productivity, but in the automation of at least some parts of their operations as well. And this is where disruptive outsourcing will take the lead.

Disruptive outsourcing, bringing technological advancements to the industry, is a step forward in the outsourcing world competing with its traditional forms. Robotic process automation and cloud computing will gradually replace the human workforce and those outsourcing destinations that will grasp this trend first, will win in the long run.

93% of companies surveyed by Deloitte report that they have already started or are considering the usage of cloud computing. The companies also expect their outsourcing providers to embrace the same attitude towards disruptive technologies and implement them in the near future. Disruptive outsourcing solutions are expected in all functional areas: IT, HR, Accounting, etc. as they allow much more flexibility and scalability in comparison to conventional outsourcing strategies.

IT Outsourcing Success Stories

Google, WhatsApp, Alibaba, Skype, BaseCamp, AppSumo are the companies that have outsourced successfully to name a few.

All of them are a harmonious blend of in-house and remote workers. Depending on the company’s size, needs, budget and priorities, they find their own balance between outsourced and in-house work.

For example, WhatsApp is a world’s known successful outsourcing case study that couldn’t afford growing their inhouse team of 35 people. They decided to outsource software development to Russia. Remote Russian developers helped the company to scale and save the costs and in a while, as WhatsApp entered the global market, Russian developers were relocated to the USA.

Slack, an online collaboration tool, is another successful IT outsourcing case study. Founded by four smart guys, the company trusted their product’s beta testing to an outsourced team. As a result, after getting profound feedback on copy and design, Slack managed to win over competitors and become a $2.8 billion worth company.

Skype also chose outsourcing. While being at a rise, Skype had their apps’ back-end fully developed by outsourced Estonian developers. Who could imagine that the future worldwide tool for businesses would rely on these Estonian guys?

The key takeaway from these outsourcing success stories is that outsourcing gives access to world-wide highly skilled experts who can help businesses scale fast, keep costs down and develop high-end products and services.

Wrap-up

Outsourcing has become an integral part of the US and European businesses and a valuable asset in a value chain, no matter if this is a whole development center or a few bright experts in the augmented team.

And while traditional outsourcing has a proven track record of success globally, the advantages of disruptive outsourcing will be gradually adopted within the next five years, provided that outsourcing vendors will meet the security requirements of working with cloud computing, robotics and other disruptive technologies.

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Igor Tkach is a General Manager at Daxx, a software development and technology consulting service company, part of Grid Dynamics Group. Igor’s areas of expertise span leading tech businesses, building remote teams, scaling business processes, client success, management consulting, business analysis, Agile project management and product management.

Daxx is the Netherlands-based company with 20 years on the market. We help businesses solve the problem of local talent shortage. Build a cross-functional team with custom hired software engineers and benefit from our value-added services.