Digital Transformation Outsourcing: What Works and What to Watch Out for

Digital Transformation Outsourcing: What Works and What to Watch Out For. Explores outsourcing strategies and caveats to drive digital transformation (DX) success in the fourth pillar of talent acquisition and organizational structure. Learn about transforming your internal workforce, leveraging experts, and building sustainable collaboration models.

Basic strategies for digital transformation talent acquisition and the need for outsourcing

New jobs should be based on recruiting people with experience in the field. You can’t just train people to do the job. And even if you outsource, internalization is a must.

The importance of building a DX organization and preparing for the challenges of execution

We’ve covered what the goals and personality of a DX organization should be and how to select leaders. Now, let’s look at how to organize your practitioners and prepare for the challenges of execution. When it comes to implementing DX in earnest, most organizations are likely to face a labor shortage.

To execute DX, you need people who are familiar with the key technologies – artificial intelligence, big data, cloud, and the Internet of Things – and unfortunately, there is a huge shortage of specialized talent in the market. You also need people who are not just developers. For example, we need service planners for strategy and business modeling, service planners for planning new services, and designers for UI/UX/GUI. Depending on the direction of your company’s DX efforts, your staffing needs will vary slightly.

Once you’ve decided that DX is an important strategy for your company, building an organization with the necessary skills is a natural starting point. But where do you find these people? The first and most preferred option is to create a new DX organization, but leverage your existing workforce rather than hire new people. This is a way to build the organization through transitional assignments to new roles that don’t necessarily have the experience or technical background for DX projects.

From a management perspective, this is the easiest option because it leverages existing talent. You’re putting someone in a new field with no experience, but with enough training, you can expect great results. It can also be seen as a way to revolutionize the company and streamline management at the same time. However, the bottom line is that it’s not impossible, but it does require an absolute investment of time and money.

Limitations of internal staffing transitions in DX projects

When you’re transitioning people who don’t have experience in a particular field, you usually run a training program to get them up to speed and give them experience on a project or two. However, if there is no one else in the organization with experience, everything is new to them and trial and error is inevitable, even if it’s unintentional.

This is a major reason why DX implementations can take at least a year and up to three years of wasted time. However, this is only the case if the person in charge has enough experience, and if everyone from the head of the organization to the practitioner has been deployed through job switching, it is practically impossible to successfully conduct DX through their own efforts. Therefore, if possible, you should focus on recruiting people with external experience, even if they are the core of each job.

There are several criteria for selecting people to switch roles. The most important thing to look for is an interest in acquiring new knowledge and a passion for self-improvement. Unlike other roles, DX is not one of those fields where you learn all at once and build up your own know-how as you go along, so it’s important to have an open mind and attitude towards change. This, coupled with experience, increases your chances of becoming a great DX person.

Critical considerations and strategic approach to leveraging digital transformation outsourcing

After internal hiring, the next option for executives is to outsource to a specialized company to drive DX. This is an easy decision to make and can be done quickly. However, there are some important considerations. Since the goal of DX is the continuous growth of your company, you shouldn’t outsource every aspect of it. For example, in the case of big data analytics, there are many different roles, from data scientists who do the analysis and modeling, to data engineers who pre-process complex data from existing systems, to people who develop and operate the analytics platform.

However, outsourcing all of these analytics tasks may produce the desired results quickly, but it is not possible to build them into a company’s core competency and advance the analytics results. This is why it’s better to have an internal team of data scientists responsible for data analysis and modeling, meaning that domain knowledge and data expertise are internalized within the company. Having at least one person who understands the company’s domain and who understands the technology in the field is a good starting point for internalization, as it allows you to respond to various risks. For other areas, you can actively consider outsourcing.

The same goes for other functions. Outsourcing due to a lack of internal resources versus outsourcing the entire process because you don’t understand the field are two different approaches with different outcomes. Even if you outsource most of your work, continuous improvement and internalization of business-critical functions is essential.

If you want to create a new business model with mobile services, you need to keep the people who design and develop the apps in-house for the medium to long term. If you outsource this process to a one-time SI project team, you may be able to create a service right away, but you won’t be able to continuously operate and improve it, and it’s likely that the service will eventually fail. It is important to keep in mind that this is not a problem with the SI project itself, but with the different purpose of the business.

Collaboration models and internalization strategies for sustainable digital transformation

Is there anything you can do to improve your odds of success when outsourcing? As mentioned earlier, the nature of DX projects is subtly different from traditional SI projects. It’s not something that can be accomplished in a single assignment, and it requires constant iteration and improvement. It’s important to understand this difference and create a collaborative relationship with your outsourcing partner.

For example, even if you do contract, it’s better to have an operational contract that complements your internal resources rather than a traditional SM (System Maintenance) contract, which means that you need a contract that brings in external experts rather than a traditional SI and SM contract. However, these contracts are only for the supply of manpower, not for finalizing the project scope and date. There is a risk of uncertainty on the part of the hiring organization, but it is a more likely way to keep up with changing goals.

Consider a business model shift to a mobile app. Your first outsourcing contract will focus on the planning and development of your mobile app. The on-site and outsourcing partners would work together to bring the mobile app to market based on a mutually agreed upon timeframe and scope through a project agreement. This is a traditional SI type of outsourcing agreement. Afterwards, a minimum operating agreement for the mobile app to cover errors and maintenance is also concluded, which is the SM contract.

If some features need to be further developed, a new SI contract is signed and the app is improved, which has been the general practice of outsourcing contracts until now. However, these SM contracts are not scoped according to the DX characteristics, but only to secure resources. In this case, the service can evolve into a more sophisticated process as the company continues to collaborate with the acquired personnel and make continuous improvements to the mobile app. Historically, we’ve seen companies start a DX assignment and end up with a stalled project because they don’t have this type of arrangement.

The last point I would like to make is that even with such a contract, it is not realistic to retain all the people involved in the SI contract, so it is important to explicitly declare these conditions in the initial development contract, so that the SI partner is fully aware of them and can start the assignment. It is important to retain at least 30% of the workforce on an operational contract to ensure continuity of development. In addition, as a DXer, you shouldn’t rely on your partner to do all of the work, but rather identify key people who will be co-creating and working with you in the future.

To summarize. The key to sustainable DX is to internalize the capabilities within your organization. For this to happen, it’s important to have internal talent, even at the smallest scale, as described above. Keep in mind that if you’re going to train and transition people, you’ll need to give them plenty of time. If you’re outsourcing, you’ll need to build a different kind of collaboration model.

Understand that DX is your work, not someone else’s, and be clear that it should be a tool for continuous innovation. DX is also a human endeavor. Whether it’s done internally or with external help, people are at the center of the process. The key is to make sure they understand the need to continue to execute on DX and to give them plenty of support so that the capabilities remain within the organization.