Nearshore Americas

CIOs Are Riding the Line Between In-House Development and Third-Party Support

Pressures keep mounting for CIOs and other C-suite executives as they try to maintain a balance between in-house development of technological capabilities and organizational needs for third-party expertise.

The winds of technological change blow with increasing fury, giving businesses no choice but to follow the path of tech adoption. Under that weather –exacerbated by rising costs and talent shortages–,executives face the challenge of keeping up with emerging technologies and sticking to budgets that have seen a turn towards the conservative in the midst of a possible economic downturn in 2023.

While outsourcing IT processes might have been the preferred option a couple years ago, CIOs themselves are noticing a inward-looking trend which, nevertheless, keeps third-party partnerships at an arm’s length. 

“It seems to be easier to find third-party providers to develop new products and then work on transitioning those products to internal staff to maintain”—Ryan Sylvester, CIO at WPAS Inc.

Tech executives seem to be opting for insourced support teams, Ryan Sylvester, Chief Information Officer at WPAS Inc., told NSAM in an interview. Third-party partners are seen as an option for the development or handling of new products.

“It seems to be easier to find third-party providers to develop new products and then work on transitioning those products to internal staff to maintain”, Sylvester observed.

Sylvester’s comments fit with Boston Consulting’s latest observations on the topic. In an article published in February 2023, the firm pointed out that “businesses are likely to invest in developing critical capabilities in-house even while using their relationships with service providers to step up the pace of digital transformations”.

Industry observers expect to see a proliferation of global in-house centers (GICs) and a Build-Operate-Transform-Transfer (BOTT) model. This approach will allow companies to leverage their third-party partnerships to absorb expertise into their knowledge ecosystem while taking advantage of a global talent pool. 

“BOTT provides flexibility: operations can scale up or down as the business demands, or even pivot entirely as strategic objectives change”, Deloitte pointed out in its latest Global Outsourcing Survey. “With renewed interest from both vendors and clients, BOTT is an excellent option to pursue a GIC/captive approach”.

Under the GIC/BOTT model, businesses in the US and Europe are trending towards “location agnosticism” and experimentation. India remains a favorite source of IT services, but Latin America, Eastern Europe and even North America itself are emerging as viable options in the eyes of the buy-side.

For Nearshore vendors, all of the above points to the need to remain on top of emerging technologies. Customers won’t settle for paying for a service provided externally; they’ll want to absorb the knowledge into their ecosystem of expertise and ask to know more about what’s coming down the line.  

Looking Upstream

Despite companies pushing for more sophisticated operations being taken care of by their in-house teams, there are tech processes which still remain beyond their grasp and which represent opportunities for third-party vendors.

Cybersecurity

Over the past couple years, security has been a top priority in the agendas of business executives. With cybercriminals growing bolder and the public trust being further eroded, organizations acknowledge that they’ll be needing more than a hand to keep data secure. 

Less than half of businesses (48%) queried by Deloitte for their 2022 Outsourcing Survey feel ready to meet cybersecurity. In contrast, 95% of 2019 respondents considered themselves ready to meet the challenge, pointing to a sharp loss in confidence. 

According to the latest edition of that survey, 81% of executives turn to third-party vendors for security support, whether fully or in part. 

In 2021, organizations spent around US$150 billion on cybersecurity, an annual growth of 12.4%, according to a report by McKinsey & Co. That same report points to an “addressable market” of between US$1.5 and US$2 trillion. 

Data Analytics

Alongside cybersecurity, data analytics topped the list of outsourcing priorities in Deloitte’s 2022 survey, which points to an increasing demand for IT vendors who can provide value through analytics. Of the executives surveyed, 96% said they use service providers as a source for the development of their in-house data and analytics capabilities.

Nevertheless, it seems some buy-side companies are already absorbing analytics into its knowledge ecosystem. A couple executives told CIO that they plan to outsource tasks such as warehouse data management in order to let their inner teams focus on business intelligence, insights and data analytics in order to “drive value forward”.

AI/ML

The AI feels more palpable than ever. With the popularity of technologies such as ChatGPT, public awareness of AI/ML’s capabilities has finally exploded into the scene, ramping up the demand from businesses for AI-powered tools. 

“Nearshore providers that specialize in AI services like natural language processing, machine learning and predictive analytics could be in high demand”— Camilo Gomez, VP of Engineering at Appgate

This development has put CIOs and their tech teams in a tough spot. Demand is too high, and it’s hard to keep up –in terms of volume of work and required knowledge– without the help of third-party providers. According to Deloitte, 94% of organizations surveyed in 2022 said that they are already leveraging service providers to develop their in-house AI/ML capabilities.

“[AI] is expected to see continued growth as more businesses seek to leverage data and automation to drive insights and efficiencies”, commented Camilo Gomez, VP of Engineering at Appgate, in a previous interview with NSAM. 

“Nearshore providers that specialize in AI services like natural language processing, machine learning and predictive analytics could be in high demand”, he added.

IoT

Though less tangible at the moment than AI or other cutting-edge technologies, the Internet of Things (IoT) promises to burst into the scene in a similar way once proper infrastructure is in place for its widespread adoption. 

“As more devices become connected and generate data, companies will need talent with expertise in IoT architecture, data management and security,” Gomez pointed out. “Personally, I have not seen a critical mass of hardware and IoT expertise in Nearshore providers to capitalize on this trend so far.

In a recent report, the World Economic Forum underlined the fact that, in China, where IoT is advancing rapidly, “there are now more connected things [devices] than connected people”. Though infrastructure gaps remain in most regions, the international organization expects IoT to take hold, heralding a “new era of connected things”. 

Trusted Experts

The flow of the IT services market is pushing vendors towards a role that’s more akin to trusted experts who’ll supply their know-how instead of sticking to a traditional SaaS model. 

As pointed out by tech executives to CIO, cost reduction remains a key driver in the search for third-party partners. Nevertheless, the model is moving towards a search for efficiency plus effectiveness. Access to niche skills is now a top priority, and the endgame involves a stronger focus on “core” operations, innovation and business transformation.

“This trend has fed the shift from buying technology to building, composing and assembling technology to meet specific business drivers”, John-David Lovelock, Chief Forecaster at Gartner, stated in a recent forecast published by the firm. “As organizations look to also realize operations efficiency, cost reductions and/or cost avoidance during the current economic uncertainty, more traditional back-office and operational needs of departments outside IT are being added to the digital transformation project list”.

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Within this landscape, vendors will have to leverage their reputations as experts, but also the trust of their customers. A survey by the Boston Consulting Group found that, on average, businesses tend to work with as many as five service providers. The firm points out, nonetheless, that “developing deeper relationships with fewer partners may be the way to go”.

On a similar note, Deloitte sees a drift towards “an entire ecosystem of third parties and solutions based on trust and transparency over single-vendor performance”.

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

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