“Individuals and interactions over processes and tools” - The Agile Manifesto
The center of gravity of IT is shifting from systems of record, towards systems of engagement. During this year’s Sapphire, SAP’s marquee event, executives of the German company made the statement that SAP is no longer a B2B company, but a B2B2C company. Their explanation comes from the acknowledgement of the consumerization of IT megatrend , and SAP’s focus on helping their clients introduce new consumer offerings.
According to Bloomberg BusinessWeek , “SAP has spent more than $12 billion on Silicon Valley takeovers since 2010.” The portfolio of acquisitions includes Sybase, Syclo and Hybris, a clear signal of the relevance of mobile computing and consumer-oriented technology within SAP’s strategy.
The reason why I highlight this is because if there is a company that can represent modern-day systems of record, that would be SAP. Today, nearly all of the world’s leading brands are running SAP. And for the past few years, this company has been sending clear signals that the evolution is happening at the front end of the business. The back-end is under control and systems of engagement are setting the pace.
This reality needs not only new technology, but different structures within the organization. These new structures span from the adoption of lean thinking, and even applying Lean Startup methodology to established companies, to configuring operating models like DevOps, or adopting methodologies like Agile and Kanban development.
Organizations realize that they need to develop more software at a faster speed than ever before. But in order to comply, they have also realized that hiring more software developers may not be the answer, for three main reasons. First, there is a scarcity problem; according to Dice.com, in 2012 this sector had a 3.8% unemployment rate. At half the national average, this rate is consistent with an expanding economy. Second is the aspect of cost; “U.S. technology salaries rose last year (2012) more than they have in a decade, with the average tech professional earning a 5 percent increase, from $81,327 to $85,619,” as stated by Dice.com . Third, the fact is that most companies lack the experience and skills to be an efficient software product development organization.
Outsourcing seems to be as valuable a tool as ever to meet the increase in volume and speed imposed on IT. In fact, a July 2013 study by Forrester, indicates that global IT consulting and systems integration budget will see an annual increase of 5.7% in 2014, trailing only to the software category (6%) within the IT budget. Furthermore, a January 2013 survey by HfS showed that a whopping 85% of respondents plan to start, maintain or increase the volume of application development and maintenance outsourcing.
Given the scarcity factor, global outsourcing seems to be a good solution for U.S. based corporations, yet because most of the workload is in systems of engagement, India-centric outsourcing may not be sufficient.
Enter nearshore outsourcing. The features that have been touted about nearshore with regards to proximity, same-time zone, and real-time interaction have met their moment, and here are three reasons why:
Integration. Systems of engagement require more cross-functional collaboration than any previous generation of IT systems. Marketing, sales and operations need to work in sync and in constant communication with IT. And these interactions cannot be constrained to pre-determined time-tables and work schedules. In many cases stakeholders in all of these entities need to work in unison as one, and respond to impromptu interactions and continuous iterations.
Risk management and compliance. When the end user of a system is the actual consumer, risk escalates exponentially with every person using the system. Everything needs to be under control, from what would otherwise be trivial aspects like password-reset functions, to system availability, customer information privacy and crisis management. Active and on-demand interaction between constituents is vital to mitigating an increasingly wide range of threats and compliance issues.
Customer experience. Empowered consumers expect seamless interactions, powerful and user-friendly software, personalized and context specific information, as well as constant evolution of the applications they use to interact with the company. These types of systems of engagement can only be created through tightly integrated software development teams, reliable backend integration, proactive software validation teams and thorough understanding of the concepts behind good user experience.
These three key requirements can be addressed by robust nearshore delivery models. Similar to SAP, the center of gravity is shifting from systems of record, towards systems of engagement, and the global outsourcing center of gravity may likewise be suffering some adjustments. Although it will hardly shift too far away from India, it is certainly experiencing counterweights in places like Latin America and EMEA, while making the global delivery of services more distributed.