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IT Outsourcing Growth in a Post-Pandemic World – What’s Driving It?


Adriana Bombaci

As organizations rebuild, IT sits at a crossroads that presents an unprecedented opportunity to chart a more flexible, scalable, and cost-effective path forward by increasing the use of outsourcing.

As much as 80% of a traditional IT Department’s efforts are still consumed by reactive, day-to-day, activities like help desk support that leave little bandwidth to focus on strategy and innovation. A severe IT labor shortage also leaves CIOs struggling to hire the resources they need to ramp up quickly after pandemic shutdowns, not just in Service Desk but also in areas like Application Development, Cloud, and DevOps.

At the same time, uncertainty caused by rising COVID rates and sky-high labor costs has many hesitant to hire.

Ramping up challenges has forced a wholesale rethinking of what it’s going to take to accommodate business technology needs moving forward. And as business strategies are reset, nearly 50% of IT leaders are turning to outsourcing to optimize their operating model and achieve their goals faster.

Let’s examine why outsourcing IT operations holds the key to building a sustainable, modernized organization.

A severe IT labor shortage threatens digital transformation efforts

Industries like hotels, airlines, cruises, casinos, restaurants, and ride-hailing saw departments nearly decimated, as drastic drops in demand left little need to carry IT cost centers, due to Pandemic. But here, you can check out Outsourcing Trends and Cost/Service Experiences for 11 Key IT Functions from IT Outsourcing Statistics report.

Now, the rapid return to business has IT struggling to keep up. Gartner has predicted that IT skills gaps may cause 75% of organizations to experience visible business disruptions.

But ramping back up has proved easier said than done for IT leaders, as exploding technology demands intensifies the impact of the nation’s labor shortage.

Even before the pandemic accelerated digital transformation efforts, 2020 began with nearly 918,000 tech jobs unfilled in the U.S. – and millions in lost productivity, The Wall Street Journal reports.

The unemployment rate for IT occupations had recovered to 2.2% in June, compared to 5.9% across all industries. In fact, by May there were 13,500 more IT jobs in the U.S. than 2020’s peak in February, Computerworld reports.

With such surging demand, recruiting and retaining qualified IT talent in-house costs companies a premium. While the pandemic halted pay raises for many sectors, tech salaries rose 3.6% in 2020 and are expected to increase more this year, according to the Dice 2021 Tech Salary Report.

Pent-up demand for new opportunities during COVID is also expected to trigger a “turnover tsunami” in 2021 – with as many as half of workers looking for new jobs, the Society for Human Resource Management (SHRM) reports.

At 13.2%, tech already experiences the highest turnover of any industry. Replacing technical positions in the tight job market costs an average of 100 to 150% of salary.

IT Outsourcing (1)

IT outsourcing: ramp up quickly while guarding against future disruptions

Yet with great challenge comes great opportunity: the chance to wipe an inefficient and antiquated slate clean and implement a better way of work.

The pandemic has eroded even more skepticism over the ability of virtual IT teams to deliver high-quality work, which is increasing CIOs’ appetite for outsourcing. In a survey of 800 employers by HR consulting firm Mercer, 94% reported productivity levels remained the same or higher after shifting all departments to a remote workforce.

In 2020, CIOs dedicated an average of 13.6% of their total IT budget to outsourced IT support – up from 9.4% in 2018.

Given all these market trends, these are the 5 key reasons why CIOs are increasing their adoption of IT outsourcing:

  • Gain instant access to a new and deeper pool of world-class IT talent. The U.S. only graduates 65,000 computer science graduates per year – not nearly enough to alleviate the labor shortage. Incentives for STEM education in top nearshore locations enable outsourcers to benefit from a constant flow of IT graduates with cutting-edge expertise.
  • Benefit from best practices and technology that boost modernization and speed growth. IT Departments dominated by paper-intensive environments, manual processes, and dated software applications struggled to adjust to a distributed workforce. Quality outsourcing providers have proven methodologies and tech-like automation already in place to immediately start fresh with streamlined, modernized operations.
  • Maximize your IT budget with access to top talent at a fraction of the cost. Nearshoring IT operations to Costa Rica, for instance, offers an average labor savings of 40% to 50% compared to the U.S. Outsourcing also alleviates costs associated with office space, onboarding staff, managing employee needs, covering absences, and training.
  • Mitigate the risk of future disruptions with the flexibility to scale resources up and down as needed. Outsourced IT support enables organizations to operate with fewer workers on payroll without compromising quality or productivity.
  • Avoid the headache and expense of recruiting and retaining low-value IT roles. Instead, CIOs can concentrate their efforts on higher-level positions that directly impact the strategic direction of the company.

The right IT outsourcing partner can help you navigate this critical fork in the road

Outsourcing IT to top nearshore locations in Latin America like Costa Rica mitigates risk with access to modern infrastructure, workers with better healthcare and living conditions, and a world-class coronavirus response that earned United Nations recognition.

Nearshoring also resolves many of the pain points that plague Asian-based offshoring solutions, such as the difficulty of doing business across faraway time zones, language and cultural barriers, and alarmingly high turnover for IT roles that impacts consistency and training costs. With a less competitive IT job market, nearshore providers can also more easily find quality talent willing to work overnight shifts – a key advantage for companies seeking a partner with a proven track record of 24/7 IT support.

Thriving in the new normal means challenging traditional notions surrounding how to structure and manage IT, teams. With the right IT outsourcing partner, organizations gain the flexibility to meet future challenges head-on – quickly bringing onboard experts CIOs couldn’t otherwise source at a significantly lower cost than hiring.

Auxis IT Outsourcing Services. Transform Your IT Department with Nearshoring & Automation