Which capabilities need to be in-house and which can be outsourced ? For many, this question is an uncomfortable one. Especially when the ratio of in-house to outsourced resources needs to be strategically justified. It’s much easier to simply base your direction on what your IT organization currently does best. But striking the right balance of capabilities with internal and outsourced resources is a critical job.
What are the skills and abilities you need in-house to secure your business success long-term? In view of the disruptive changes that ever-increasing digitalization will bring to almost all areas of the business, IT must become much more transparent. External shocks such as COVID-19 and far-reaching market changes such as the energy revolution further increase the need for clarity.
These are the five most important points for understanding which skills belong in-house, which advanced skills need to be developed and where sourcing solutions are appropriate.
1. Core skills determine scope of internal services.
Corporate strategy is the starting point for all deliberations. Core skills are particularly relevant. How do we differentiate ourselves in the market? What skills do we need to respond in a timely manner to new customer requirements and successfully develop a business model? What knowledge and skills are part of our permanent toolkit, which will get me back on track quickly and achieve new growth even after external shocks? Example: Do our marketing skills stand out? A core IT skill must then be reliably and promptly implementing sales innovations. It’s possible you’ll want to resource this important competency with at least 80 percent in-house staff.
2. Enterprise agility changes the capability resourcing equation.
There is no question that technological megatrends such as AI, IoT and cloud computing are constantly redefining the skills needed to make change. But this should not distract from the fact that a major change lies somewhere else. Organizations are increasingly managing products and services in teams that run vertically through the entire value chain. The waterfall model of the past is no longer useful for productization. Instead, working in a way that enables product owners to manage their teams in an agile manner is what matters. This is the backdrop against which IT must determine where in its value chain it needs additional development skills as well as newly structured roles. Two important questions are: 1) what are our core competencies, and 2) if we were to switch off all external provider relationships, are we capable of accomplishing our core competencies on our own?
3. Clarifying core in-house services is a prerequisite of successful IT strategies.
The question of skills and abilities leads directly to the people already on board. What tasks does your team actually perform? Honesty is crucial. Should the status quo of earlier IT strategies be continued or should the challenges created by the current business strategy now be addressed? An honest comparison of what is and what should be will help strategically balance decision-making. When key internal skills need to be expanded, strengthening insourcing can at least partially help.
4. Decisions need to be differentiated by fields of activity.
IT’s internal contribution rate actually rarely hits 100 percent. In other words, almost all work can involve outside support, and rates of 70, 50 or even 0 percent can be useful options. Make the relevance of the work to the business strategy the most important criteria. Take the automotive industry as an example: Architectural design in software development is weighted significantly differently in e-mobility than in the field of combustion engines.
5. Managing a core portfolio of in-house services mitigates operational risk.
Determining the appropriate ratio of internal and outsourced resources is a continuous task. An organization should always be given enough time to adapt. Reviewing quotas annually is, as a rule, sufficient – and doing this simultaneously with the review of business and IT strategy is a wise idea. But stay on the ball, especially in view of the disruptive changes you are facing. Resourcing core competencies internally is a vital way to minimize operational risks and retain the ability to react to the market. Especially in times of market upheaval and crisis.
Would you like to learn more about striking the right resourcing balance for core competencies? Contact us to find out how ISG can help.