The party’s over. IT costs for business are rising across the European Continent.
Now, I’d rather not dive too deep into the economics of things, but this points to several alarm bells.
- Wages are rising across Europe.
- IT jobs are in high-demand.
- There’s a growing deficit of IT staff in Western Europe.
It’s these problems that give reason to why IT outsourcing has been a major boon for companies in Europe. The bottom line is, Outsourcing bears a certain connotation.
You may understand it within the prism of ‘strategy’, as a proactive mechanism for bottom-line growth. And in light of Europe’s demographic timebomb, and the chasm of wage disparity, it’s becoming elemental to companies’ survival.
Denmark is among first to recognise this, forecasting a lack of over 19,000 IT workers by 2030.
Based on current grad rates, and putting this into layman’s terms, an additional 19 ‘graduation years’ of Danish IT students will be required to fill this gap. Once more, Hamlet will be forced to gaze beyond the castle walls.
Such is the case with niche roles and responsibilities in IT and has become increasingly commonplace. What I aim to do here, is help your SME weigh out the pros and cons of in-house development, vs outsourcing.
Humour me for a moment. Unlike the fictitious King of Denmark, today’s Hamlet is a small (fictitious) Copenhagen-based e-Commerce platform, with plans to expand. Soon, it will have no choice but to search where firstly; talent exists, and secondly; is financially viable.
Read on to discover the truth!
Outsourcing: A Brief Recap
Outsourcing is contracting services to an outside supplier. It is beneficial for many reasons, within telecommunications and manufacturing. Most recently, it favoured by businesses in the IT industry.
My colleague, Rene Koelblen, explains outsourcing and the degrees of practice in greater detail. His article is an insightful read into the pros and cons of outsourcing far, or close to your base of operations.
IT Outsourcing Challenges of Today
Outsourcing has its pitfalls, though these can be kept shallow.
The time difference between Copenhagen and Warsaw is non-existent. For UK companies seeking to outsource to Europe, a one-hour change makes scheduling conference calls a minimal hassle.
Cultural differences persist between nations; this has an impact on working hours, break times, holiday periods, as well as workplace relations. Keep each one in mind, and make sure to understand the subtle disparities between each European country.
Language too is as important as ever. To prevent misunderstandings between the client and the software house, companies are requesting that developers speak the company’s local language. In some cases, companies may find initial difficulties, particularly for less-spoken languages.
Furthermore, when choosing your next outsourcing destination, keep statistics and news headlines in mind. Political and economic instability is rife in the most unexpected places. Therefore, it’s important to assess the hard facts.
Trust is key.
And maintaining that trust is central to a brand’s integrity. Look for highlights in major publications, like the Wall Street Journal, or the Financial Times. They feature lists of top companies, such as FT 1000, which can aid in a preliminary search for an Outsourcing partner.
Industry awards by the major consulting agencies can also help understand a brand’s standing – think Deloitte, Ernst & Young, or PwC. The most promising companies are assessed and appraised in self-titled rankings, such as the Deloitte Fast 20.
So, while there is no set metric determining levels of integrity in a brand, it’s important to look for the best association.
Respect for intellectual property is a sacred issue today. Information spreads fast. However, the same principle applies – the enforcement of Non-Disclosure Agreements (NDAs), as well as legal mechanisms ensuring the protection of property.
Believe it or not, some countries fare much worse in this area than others. I recommend banking on a company with a good track record in respecting the rule of law, and intellectual property.
IT Outsourcing Merits in SMEs & MVPs
The fact is, outsourcing helps carry some weight off your shoulders. It’s akin to ‘hold this box for a moment, while I flip this switch’ – imagined on a grander scale.
In the short-term, outsourcing can be an incredible relief from busy work that happens ‘in a flash’. Most importantly, this helps companies focus on the core aspects of their business.
Start-ups benefit just as much, and for the same reason. From a cost perspective, outsourcing IT development is an ideal solution to adopting a Lean IT model. By enabling a cost-effective workforce, start-ups with limited seed funding can find early reliable pillars to their Minimum Viable Products.
The Fundamental Problem
The term ‘permanent talent’ is becoming an oxymoron. On the one hand, companies look for on-site workers, providing consistent quality IT development. On the other hand, that worker may be highly-skilled, and thereby present a cost burden to the company, particularly in high-income countries.
Not all start-ups situate in population centres, either! Regional metropolitans seldom offer the calibre of talent and expertise that’d be otherwise available in large cities.
Developers are a skilled class of people. And as universities offer increasingly niche IT degree varieties, even graduates are among the most competitively-paid entry-level employees. This situation paints a highly-lucrative job market for prospective IT developers.
It’s going to be expensive. That’s unless you can leverage your workforce, as can larger companies. This leaves smaller companies exposed the stinging winds of change. Market forces are as strong as ever – and wages will continue to rise, particularly in this very competitive job market.
Tight HR budgets pressure the need to provide quality. Barriers to entry into the marketplace is tougher when adopting a traditional hiring model. In this case, smaller firms may experience competitive disadvantage, if playing by the same set of rules as larger firms. Should they choose to do so, their end-product will ultimately lag.
Respective of costs v. product outcome, a cost-benefit analysis will likely rule contrary to the benefits. A smaller in-house team is unable to compete with seasoned teams inside larger firms, which exert scale economics on development tasks.
In all, when playing by numbers as a smaller company, odds are stacked against you.
In-House Merits: Large Companies
Retaining in-house staff is a sound long-term strategy. Long-term projects and developments would benefit from an in-house IT developer with intimate knowledge of company operations, the local language, as well as culture, particularly for already-established organisations.
This strategy would be otherwise ineffective for ‘quick entry-to-market’ product times, which would require only per-project staff. In such situations, only a ‘seasonal’ approach of hiring developers is necessary.
Of course, hiring In-house sometimes comes down to a simple sentiment. Some companies would rather have staff ‘close-by and on-site’. This is understandable, as organisations seek a more hands-on approach to IT.
Larger enterprises would maximise full-time developers, as talents would always be put to effective use. In the case of smaller upstart organisations, the initial need for talent in-house may be less pressing on such grand a scale.
Salaries for IT-centred jobs across Europe are rising considerably and with a remarkably simple formula. This supply-demand perfect storm is a lucrative career path for some and expensive investment for others.
Of course, in-house IT development quality is not based upon in-house placement, as such an endeavour takes time to implement and verify. Smaller companies would need to invest more time in finding the exact persons to suit their needs.
Outsourcing is a valid solution to address IT voids and can be very cost-effective. This does not mean it is ideal for all involved. I recommend looking within and recognise the company’s needs and requirements of the customer.
However, in the short term, in-house is out of the reach of smaller companies. As far as solutions go, the best bet would be to outsource in the immediate term.
Thankfully, this has never been easier. Tools are readily available, to help link SMEs with IT developers offering tailor-made solutions. Emerging companies would do well to examine regions boasting world-class IT infrastructure, with similar work cultures to their home countries. Such is the winning formula helping to determine the premium quality of IT staff.
In all, as Western Europe begins to lack the availability of IT staff, the dilemma will grow.
And just as Hamlet’s Danish stage seeks to close, another is already open nearby.