HKCSView: How digitization changes outsourcing priorities?

Ted SuenIn this globalizing and competitive business environment, many Hong Kong enterprises struggle to focus on digitizing its core businesses and delivering quality customer services with cost-effective operations.  Some companies chose to outsource part or all of the IT functions to deal with this issue.

However, making outsourcing decisions are rather complex and challenging processes. The result is often vital to the management process and businesses. There are multiple factors and questions to consider—which part of the IT functions to outsource; where to outsource; what is the real cost and benefit; what are the risk factors involved.

Many enterprises have to deal with several challenges, including deriving the benefits from using emerging technologies, the shortage of skilled IT personnel in the labor market, and the risks of outsourcing to offshore locations or nearshore location.  Enterprises have to understand the key determinant factors of IT outsourcing that influence enterprises in choosing IT outsourcing service providers in outsource or nearshore location.

IT joining the business core

Business executives often question the value of IT investment and many enterprises do not consider IT functions their core business. In order to allocate more resources to core business activities, enterprises tend to keep IT spending minimal. Outsourcing the in-house IT functions to external service providers used to be a popular and effective solution that enterprises take to reduce costs.

But this is changing in recent years. The rapid development of emerging technologies like cloud computing, big data analytics, artificial intelligence (AI), and internet of things (IoT) have significantly changed the way businesses engage with their customers. Such developments are also changing the mentality among business executives, particularly their expectations in technology and its contribution to business growth. More executives are recognizing the value of technological readiness for the organization’s success in the new digital era.

Meanwhile, they are also facing new IT challenges and issues that may not be solved by simply outsourcing. To be technological ready, business executives need to acquire knowledge of the latest technologies. For the technology executives, they also need to reallocate resources and investment to enhance legacy information system (IS) platforms, in order to capture the digital opportunities. Nevertheless, such investment also means they are dealing with increasing complex IS platform.

New role for outsourcing providers

In order to derive utmost benefits from taking advantage of the latest emerging technologies, IT executives are demanding different services and arrangement from their outsourcing providers. They are looking for IT services providers to help them overcome digital challenges, like hiring IT staff with digital skills, finding in-source contractors, setting up their captive centers in offshore location, and a combination of these options.

For many IT executives, there are three sets of considerations when making outsourcing decisions: economic, strategic, and environmental. Among these sets of factors, economic used to take priority. But with a higher demand for IT and digital talent, more local enterprises are turning to outsourcing providers for technical skills and expertise.

Although most Hong Kong enterprises share these common determining factors, there are factors that are unique to specific organizations and in Hong Kong. A significant gap between the demand and supply of IT talents in the city is driving many IT executives to consider overseas outsourcing. They are taking advantage of the overseas talent and relatively low-cost IT talent in the neighboring countries. This is also a practice among many Asia-Pacific enterprises, who are exploring nearshore IT outsourcing services to provide cost advantages, cultural compatibility and multiple language skills.

The advancement of emerging technologies like AI, big data analytics and robotics are changing the delivery model of outsourcing services. Outsourcing service providers are aggressively employing talents with emerging technologies to deliver better services at a lower cost. The key differentiator for outsourcing providers is no longer about cost. It will be their ability to bring an innovative delivery approach through emerging technologies.

Ted Suen is the president of Hong Kong Computer Society. He has 30 years of solid experiences in IT with expert knowledge in IT outsourcing services and large scale system integration projects. Ted is also Head of Information Technology at MTR Corporation.