Subscribe for 50% off
Subscribe

How IT Leaders Can Manage Costs During Inflation and Develop Better Outsourcing Partnerships

The best strategy to maximize business needs amid inflation involves appreciating existing shifts in economic forces to source partnerships for improved business value.

By
Opinions expressed by Entrepreneur contributors are their own.

Technological advancements have significantly improved outcomes and efficiencies across various industries. However, issues like rising costs due to IT staff shortages influence technology services costs. The best strategy to maximize business needs amid inflation involves appreciating existing shifts in economic forces to source partnerships for improved business value.

One of the main factors influencing business costs, specifically outsourcing costs, is the challenge of the current technology talent shortage worldwide. Most CIOs appreciate that getting and retaining workers for business operations is complex. It can be difficult to analyze and predict the availability of human resources due to the complexity of these resources. Moreover, these outsourcing challenges are similar to the supply chain issues that companies continuously face over the years.

Related: Is Outsourcing the Right Decision for My Business?

Technology costs have continued to rise over the years. This rise exists in industries with most CIOs reporting more than a 10% rise in business costs. Moreover, other specialists are predicting a recession. For example, Amy Fong of the Everest Group says that the company has experienced staff shortages and increasing costs for at least half a year. The partner insists that there is still a state of uncertainty in the industry. Fong says that industry stakeholders can only lower outsourcing costs by appreciating this concern's existence and developing appropriate strategies to improve flexibility in industrial operations.

There are specific factors for IT leaders to consider when outsourcing. For example, these stakeholders may want to include a new supplier in their operations, receive IT services from a different location and consider pricing before entering a new three-to-five-year contract. However, the availability of high-demand skills will continue to be limited.

Although outsourcing costs continue to rise, IT leaders should develop and implement practical management tips that promote flexibility in business operations. CIOs may need to adjust workforce plans to fit current demand and supply imbalances. The following tips could help IT leaders manage costs and support better outsourcing partnerships.

Analyze your commercial model mix

IT leaders should invest time in analyzing which method of contracting UT services benefits their business most. There are methods in which accurate implementation could lower business costs. For example, a CIO might consider paying by time and material or only for the end result. The latter places risk and cost management concerns on the supplier.

The rising outsourcing costs should encourage IT leaders to carefully discern models before selecting a specific model. Moreover, the most effective service model strategy involves resource management. IT leaders should collaborate with providers whose outsourcing deals align with their goals of lowering costs but maintaining higher quality. Sometimes it may be necessary to diversify techniques to maximize efficiencies for improved outcomes.

David Rickard, the vice president of business process services at Everest Group, encourages IT leaders to develop innovative solutions that may be transformative in their industry. Moreover, IT leaders should consider collaborating with other professionals across multiple industrial backgrounds to support the realization of potential opportunities for change to improve the quality of outcomes while lowering outsourcing costs. IT leaders should focus on strengthening their relationship with suppliers to appreciate better options for competitive pricing or adjusting commercial models, depending on context.

Related: Pros and Cons of Outsourcing Your Tech Team

Consider location and demographic challenges

IT talent inadequacies are a significant phenomenon in the IT services industry. The broad nature of demographic trends has enhanced the vulnerability of onshore geographies. An increase in outsourcing exists due to the demand for the IT workforce, especially in 2022. Leaders should identify hiring and retention challenges in the IT services industry, like the aging working population and immigration, and develop ideal solutions to manage the impact of IT talent shortages.

Another challenge affecting the straining supply of talent within the IT service industry includes the trending Covid-accelerated digital transformation efforts. IT leaders should consider the cost-effectiveness of their IT service work and develop a relationship with a dependable outsourcing talent provider. Moreover, appreciating the changing workforce demographics influences the location of outsourcing providers.

Never underestimate the power of cost analysis

There has been substantial growth in outsourcing prices, specifically for IT infrastructure and applications. There is an increased need for IT leaders to focus on comparing prices against the marketplace. This strategy guarantees you get the best price and do not settle for an attractive rate that is still above the market.

A comprehensive cost analysis provides an IT leader with the total cost of a specific operation. It is not enough to only consider a rate card, leaders also need to discuss with the provider about other complementary fees — for example, add-on-services and operational and management costs. Although IT leaders may consider wage increases to retain the workforce, this strategy should not lead to equivalent price increases. Including clauses in outsourcing agreements are an excellent way for IT leaders to protect both sides — supplier and consumer.

Related: The Demand for IT Is Here to Stay

Identify IT needs, and forecast the future

Suppose you are a leader of a large IT company, like a procurement office. In that case, you need to analyze and appreciate the importance of IT sourcing and contingency staffing in the process. The most useful way to manage costs is to identify IT needs. However, leaders should not only consider current needs but also be able to forecast the future to create solutions that eliminate any hindrances in business activities for improved outcomes and efficiencies.

There is a necessity for collaboration among IT leaders and other industry stakeholders to develop and implement appropriate solutions that lower outsourcing costs. Collaboration also improves future predictions, ensuring IT leaders identify talent-sourcing options for developing proper solutions.

Outsourcing arrangements are critical for IT service companies seeking cost-saving benefits for their organizations. Some practical strategies supporting this goal include maintaining relationships with suppliers and promoting the flow of innovative ideas that may be transformative in how organizations in the industry operate.

Entrepreneur Editors' Picks