March 3, 2020

IT outsourcing trends in 2020: What to expect?

future of outsourcingit outsourcing industryoffshoring trendsoutsourcing trends

Development projects begin and end — but outsourcing is here to stay. For many companies around the world, outsourcing IT services is the only viable strategy they use to move things forward. It’s affordable, less limiting than in-house recruitment, and — in most cases — very effective in terms of results. This is easy to prove if you look at the progress of industry growth. According to Statista, the global outsourcing market was worth $92.5 million — which is a considerable enhancement compared to $85.6 million in 2018. So If you want to stay abreast of the IT outsourcing industry in 2020, the following guide is for you.

The top 8 IT outsourcing trends

Before we jump into the trends you’ll need to pay attention to, let us first figure out whether it’s your thing. An outsourcing can be a great contribution to a business, whether it’s a small startup or a big corporation. But whether it matches your goals is the question only you can answer.

The major perks of outsourcing

Save money — lots of money. If you outsource IT services, you don’t have to accommodate workplaces for employees, provide insurance packages or other benefits. Literally, you pay for the service, not for a person delivering this service to you.
Flexible staffing. You might outsource staffing to an outsource provider, or hire by yourself. One way or another, the process is generally less time-consuming. Not to mention that firing is also becoming easier. It will cost you less time and effort to replace an employee and hire a more skilled one.
Location advantages. There’s no really a geographical limit when it comes to outsourcing. You can reach top specialists in top locations — without even going anywhere.

Eastern Europe as a top destination

Over the recent years, India and some of the Eastern European countries established themselves as the top outsourcing spots. This is an understandable achievement, due to the large pool of talent and affordable pricing across those countries. In 2020, the Western countries will be likely to reach out to the outsource providers from countries like Ukraine, Serbia, and Czech Republic rather than India. And there are many reasons why you should do so, too:

Cultural proximity. Eastern Europe and the countries of the Western world that outsource frequently have many cultural similarities. For instance, according to this Quora thread, 80% of Ukrainian developers are fluent in English. They travel a lot and deliver services to numerous companies across the Western Europe and the US. This way, offshoring turns into nearshoring.
Location perks. Ukrainian cities like Kyiv and Kharkiv are located in the heart of Europe. The capital of Ukraine has two international airports — so it’s easy to reach your outsourced team from anywhere, which is very different compared to outsourcing from India or the Philippines.
The proven record of expertise. Developers based in Eastern Europe have long proven to be very skilled in what they do. Recently, Czech programmers built a complicated online service that the government was planning to spend $16 million on. It took them 48 hours and a zero budget to have the platform up and running. This proves the point about the exceptional development expertise.

You can learn more about the perks of outsourcing to Eastern Europe in this infographic.

Outcome-based contracting

According to Service Futures, cooperation between contractors and companies that outsource IT services is changing. If you believe the predictions, the majority will switch to outcome-based contracting by 2025. This means, instead of a traditional output-based model, the employers will be shaping their expectations around the actual value of the outsourced services. Whether you’re a contractor or an outsourcing vendor, here’s what you should start doing right now:

Learn about how to build strategic partnerships — the ones where you can predict how your work will impact a business in the long term.
Invest more in relationships. Focus less on numbers and agenda.
Come up with a new pricing strategy, based on paying for outcomes rather than hours of work.

Chatbots, AI, and machine learning

The future of outsourcing is undeniably connected with the future of tech. And in 2020, this is going to be about AI. E-commerce is going to be permeated with smart AI chatbots. And it’s going even further. There’s the boom of deepfakes — the AI-powered technology that allows swapping faces — fueled by startups like Douplicat (which, by the way, was born in Ukraine). So if you foresee potential contracts in the industries like e-commerce or video content creation, make sure you’re prepared.

Embracing automation

Innovation is not only about devs being able to work with AI and NLP. It’s also about how an outsourcing company utilizes innovation internally. Most companies that are trying to stay afloat will be embracing more and more automation tools in the upcoming years. So think about how you might streamline your work, too. Here are a few options:

Use Continuous Integration (CI) to speed up the development. This will help to test and verify code inside a code repository for a more seamless process.
Use development frameworks, based on ready-to-use elements, like React Native. They are easier to learn and typically bring faster results in terms of coding.
Embrace assistants like Oracles and Hubs to automate development.

Each of these practices will serve as a big attraction for the businesses looking at your outsourcing offer.

Upskilling based on project requirements

Companies that outsource IT services expect to work with people — not names on the list. They want the hired professionals to communicate with them about the project, provide feedback, and even adjust their expertise to specific requirements. Hence outcome-based contracting.

As a contractor or outsourcing company, the smartest thing you can do is create an upskilling program. Basically, it’s a promise that you can learn/teach new skills if a specific project requires. This will definitely serve as a huge perk for companies selecting an outsourcing provider.

Dedicated staff wins over fixed price and time-and-material

For companies that don’t have their own teams of developers, choosing the cooperation model is critical. As we’re shifting towards outcome-based payments, the dedicated team model is becoming the most optimal solution. In contrast to fixed price and time-and-material — where you pay for the executed work — dedicated teams are flexible. They allow clients to be present during the hiring process, helping choose a reliable team for long-term cooperation.

Paying for ideas, not code

This is not only a trend in outsourcing — rather overall in the tech industry. Boosting your team’s innovation capacity can be a huge perk. For sure, outsourcing providers that do this will be more productive than those that don’t in 2020. How can you implement it? Whether you’re outsourcing or providing outsourcing services, look for the teams that do the following:

Include idea generation and innovation into their proposals.
Use and implement creative sessions where they can review a client’s project, evaluate it’s weak and strong sides, and, ideally, offer a way to improve.
Companies that understand paying for innovation is fine — even beneficial.

Collaborative alliances

This might sound like a very distant future, but it’s actually an outsourcing trend that’s becoming popular over time. Companies that deliver outsourcing services tend to collaborate rather than compete. This is a logical outcome of the following:

Client demands are expanding. It’s no longer common to hire a back-end developer to do a specific job. What most companies are looking for is creative solutions for their problems. This is why having a large net of connections across different service providers might actually be a huge perk.
Large service integrators are trustworthy. Big clients trust big companies. So if an outsourcing vendor has a competitor with a matching philosophy and expertise, they often choose to work together on shared projects.
Collaboration is easier. One of the top offshoring trends is easier cooperation across countries and continents. Geographical borders are becoming less important while you have all the tools to stay connected online. Accordingly, it’s easier to establish beneficial alliances remotely.

So what does the future look like

Everything we’ve talked about above can be used in connection with the term “Experience Economy.” The term itself dates back to 1998 and introduces the new concept of relationships between a client and a business. According to Experience Economy, it’s not only important to create meaningful experiences for clients — it’s mandatory. Outsourcing trends in 2020 will pretty much be based on the same philosophy. Instead of outsourcing a piece of code, businesses will be outsourcing smart solutions. Instead of paying for hours of work, they will be paying for the results. Instead of losing a battle for a client, outsourcing businesses will cooperate. If you’re part of the game, it’s the right time to start embracing those trends, too.