CIOs Increasingly Depend on Global Sourcing to Achieve Higher Profit

By Jon Tonti Global CIOs are more focused than ever on activities that generate revenue and they are leveraging their global sourcing strategies not to save money, but instead to invent new business verticals, according to the newly released  2012 Harvey Nash CIO Survey.   As the architecture of a company’s systems becomes synonymous with its business model, CIOs are crafting souring strategy not just directed at cost savings, but also revenue generation.

A few highlights: 

• 60% of CIOs have responsibilities beyond their national boarders
• Outsourcing key development skills will be a priority for 46% of CIOs this year
• 75% of CIOs have at least a quarter of their workforce made up from flexible labor
• The use of multisourcing will increase this year for 43 percent of CIOs
• More than half of CIOs in 2012 (56 percent) say projects that make money from technology rather than save money are the priority for their CEOs. The search for growth is on, and organizations are increasingly looking to emerging markets to pursue it. And with almost two-thirds of this year’s respondents having a global or multinational focus (60 percent), the CIO is going to be key to unlocking this growth potential
• Looking ahead, almost half of the respondents (46 percent) plan to increase spend on outsourcing this year. This compares to 45 percent in 2011, but is 10 percent up on 2010 figures (36 percent) when IT budgets were more tightly constrained and economic uncertainty was more acute
• Strategic priorities now focus on improving time to market for new products and services (a priority for 24 percent of CIOs versus only 17 percent in 2011); supporting mergers and acquisitions (15 percent, up from 12 percent in 2011); and investing time, focus and resources in mobile commerce (up from 17 percent in 2011 to 22 percent in 2012)
• CIOs recognize there is still a significant gap in the expectations between the innovation ambition of their organization and the innovation reality in their IT department

Simple Evolution, or Not

Obviously cost savings remains the driver for BPO and IT Services outsourcing which has perhaps obscured possible innovation and revenue generating activities leveraged with captive operations and or relationships with third party service providers.  As the cost-savings-focus reaches a saturation point companies are looking to turn their IT departments, in conjunction with their outsourced service providers, towards profit seeking activities; however, it’s not an easy or fluid process for all companies.

“The reality is IT is broken in many companies, and it cannot be just about keeping the lights on,” says Erik Tomasi COO at DTG Consulting Solutions and former CIO at White Mountains Re Services.  When prodded about how nearshoring can contribute to innovation instead of just taking on mundane processes he said one obstacle is that “the deals (SLAs) are wrapped so tightly and cost-driven that there is little room for innovation; it is a laggard.” (The Harvey Nash report boasts 2,438 participating CIOs and delivers perspective on how CIOs are managing the intersection of technology and strategic global sourcing.)

The rigid view of outsourcing as strictly a mode to free an organization of routine-commodity business processes rapidly falls away as skills shortages in the US motivate companies to outsource critical activities that utilize the most current and innovative technologies to build solutions that engage customers and generate revenue.  That reality is chipping away at the once persistent outsourcing stigma that a company must accept a worker that has less potential to be disruptively innovative for the sake of labor arbitrage.

“You talk to the vast majority US teenagers, whom are great users of technology, but they don’t want to be part of the team that builds it.”

“The mentality around that has shifted; it has changed because of the skill shortage.  The gap of available talent has increased; mobile, social media technologies, you just cannot find it in the US,” says Anna Frazzetto, Senior Vice President of Technology Solutions a Harvey Nash USA.  She mentioned that of 56% of CIOs polled in the survey that feel they have skill shortages in their organizations shot up 7% largely because of the scarcity of talent in mobile and social media technology realms.

Paradoxically, many IT departments in conjunction with their providers are dedicating themselves to these technologies to create new sources of revenue.

“The digital space and mobile apps,” are examples of where CIOs are developing technology projects that aim to make money rather than just save it said Frazzetto.

“Efforts related to understanding the customer, big data, and better information access for the company,” are where CIOs need to be to leverage the skills of their IT resources to drive profits remarked Tomasi.

Not Changing Anytime Soon

The US has seen a decline in STEM (Science, Technology, Engineering, and Mathematics) graduates over that last few decades and the amount of STEM graduates among 25-34 year-olds in employment shows the US well below the OECD (Organization of Economic Co-operation and Development) average of many Asian, European, and Latin countries.

“You talk to the vast majority US teenagers, whom are great users of technology, but they don’t want to be part of the team that builds it,” said Frazzetto.  “And then you have places like Vietnam where 85% of graduates are in math and science.”

The result is the obvious global talent search for the non-origin dependent knowledge worker and the full recognition that that worker is a potential source of innovation and creator of revenue generating activities.