The need to reinterpret why and how outsourcing should be used
In 2023, and as we near 2024, we know that the UK technology market is struggling in many areas. Undoubtedly, there is an increased level of bureaucracy placed upon businesses from government regulations covering all manner of issues such as; GDPR, EU, IR35 (inside or outside), AML, and even new regulations relating to cryptocurrency. Businesses are looking to lower this bureaucracy burden by outsourcing work to less complicated jurisdictions. This is not a healthy scenario for innovation within the UK, yet our concept of enterprise density adds an extra dimensionality to outsourcing that may not have been considered.
If you have any questions - contact us at www.inforhino.co.uk/contact
Introduction - ensuring we avoid outsourcing to locations that are of a different scale to our own location
One of the major challenges to organisations is not recognising what should be developed where. We try to avoid focusing on the traditional view of outsourcing to different geographical locations to your own. We instead think of it in terms of the size of enterprises within a geographical region. This is paramount to understanding why hiring overseas must be approached in the right way to maximise benefits and avoid it in many circumstances.
A complicating factor to outsourcing, insourcing, and hiring on-premise, is that there are different ways to incorporate the Software Development Lifecycle (SDLC). Do read this article as it explains why you must look to smaller local organisations that have experience of working within large enterprises as opposed to trying to outsource cheaply overseas. This is not to say that we have not outsourced work ourselves or that there are not very skilled technologists within these regions.
In this article come on we introduce a methodology for trying to establish where and when to outsource to. There is a degree of self-motivation on our part because we repeatedly see companies outsourcing to inappropriate solutions providers often because those providers don't have the experience to recommend the right solution or walk away when they are not right for the customer's needs.
What is outsourcing?
Outsourcing is where an individual or business pays an external business or individual to perform a task for them off-premises. When we bring an external business or individual to do work on premises it is insourcing.
What is the purpose of technology outsourcing?
Whilst there are many reasons for outsourcing technology needs we think there are a handful of main reasons;
- To allow solutions to be built off-site that as lower overhead than if staff were hired or insourcing undertaken
- To use expert resources outside your organisational skillset to reduce hiring overhead
- To save money
Ultimately outsourcing is to save money for your business. A simple example for this would be getting a company to do a website for you. A more involved outsourcing solution may be getting an e-commerce solutions provider to integrate their product into your EPOS.
The benefits of outsourcing overseas?
The main benefit is that you hope to engage consultancies and technologists at a far lower cost than you would pay within your own country. Within our industry we are always getting inundated with contacts from individuals and technology houses claiming to be able to offer us a solution far cheaper than we would pay but in our country. This is because, and they're quite open about it, they pay their staff local rates that in turn means paying less money for the work.
There are other benefits too, they may pay lower licencing costs, have lower energy costs, there may be some tax benefits to that of their own country.
Let us forget in terms of outsourcing overseas and instead think in terms of outsourcing to countries that are more enterprise based than your own country (Enterprise Density)
What is enterprise density?
Really this is the number of large enterprises within a country or locality. This does not mean simply having large businesses in a city, it is instead businesses that have multiple systems interacting with each other to provide information to multiple consumers. A great example is an investment bank. They have many systems; trading, pricing, risk, counterparties (customers), settlement, product control - to name but a few. For internal and external purposes (regulatory compliance), these systems are connected and managed by many different data management solutions.
We can start to see that the amount of data being managed within an organisation such as this is far larger than many other businesses. We can expect that individuals operating within these organisations will have far more capability in working with multiple systems and business needs than smaller businesses.
If we think of a country by how enterprise density - those with many staff with experience within these organisations, we can start to match our needs to the service delivery.
At this point, we may start to think - there are overseas companies telling us they have; 600, 2000, 10000 developers - they must have high enterprise density? Probably not. These companies with large number of developers will build solutions for businesses on a customer by customer basis and won't be primarily focusing on system integrations as in most circumstances - in-house staff will be working on this. We have all received cold-calling tech salesman boasting about how many developers they have on hand - it is a meaningless metric.
Enterprise Density is a kind of entropy. To evaluate whether we can outsource to companies is determine the level of the requirement. Entropy is itself a term leveraged from outside of technology but is used to try and understand the level of complexity and randomness to different facets of a system.
A simple website example of entropy
To give a simple example, one that we encounter on many an occasion - providing websites for small businesses.
Commonly, most small websites we have done happen to be requested by people we know. They want to add a little bit of credibility or presence to their business. Sometimes it is to be ready for a presentation, or to have a placeholder where customers can eventually contact them, or a hub where other social media can be linked to - again adding to the business's credibility.
The chances that your business will be asked to provide a small website is almost zero, given the vast number of different ways a website can be implemented.
Websites are perhaps the most misunderstood business need that exists above customers. One of the biggest reasons is customers can create DIY websites where many web hosting providers will give you a WYSIWYG (DIY) website builder and charge you £10 a month plus hosting. There are many companies continually peppering emails with spam offering to build them a cheap website. There are more established local web agencies and technology companies with your own country or similar sized enterprise density solution providers.
Even a small website implementation will have a fairly high enterprise density need. For starters - there are compliance requirements within your jurisdiction. We have to think about hosting. It really is important that a provider has an understanding of your needs and your potential customer's needs. Will your website be a fairly static implementation - a one-off just describing your services, or will your website and services need to evolve with your customer base? Would it be better to create a four page website yourself and get it rebuilt at a later stage? Does your supplier have the ability to integrate social media and understand the corporate language your customer speaks?
We can see that even what appeared to be a simple website implementation is anything but simple.
Does technology outsourcing overseas work?
Remember we aren't really thinking of this in terms of outsourcing overseas but in terms of enterprise density.
In our experience, outsourcing to lower enterprise density solutions providers only works with standalone implementations or components that can fit into your solution. This is where we pitch solutions at. We can either provide higher enterprise density solutions to customers requiring lower enterprise density solutions, or we provide smaller but high enterprise density solutions to higher enterprise density clients.
That was quite a complicated explanation for what is quite simple.
Customers requiring solutions such as small applications, websites, data capture, will benefit from working with software providers but have significant experience working in high density enterprises.
Offering solutions that can interact with a subset of systems within a high enterprise density organisation is equally beneficial to clients. An example is we have been building small reporting solutions that can centralise visualisation of metrics from multiple downstream systems. Enterprises can find it hard to allocate resources to projects such as these in house and these tend to be the types of solutions that they need to improve their operations efficacy.
High enterprise density locations in low enterprise density countries - can it work?
One way to approach this would be to think in terms of identifying high enterprise density organisations in a city and then assigning a higher score to providers from that location. We should be cautious when technology suppliers provide examples of clients and work because high enterprise density organisations often won't provide commendations for work. This is a challenge that we ourselves faced because investment banks and trading houses are not in the business of allowing their suppliers to be using their logos and case studies to drum up more business.
Give some examples of higher density solutions for lower density requirements?
A small website
Small websites are not something that are a common requirement requested from ourselves. However, that we have implemented multiple sophisticated websites and worked on large customer facing websites in high density businesses means we have a better understanding in terms of scaling up find meeting compliance requirements across different businesses. That we have worked in enterprises we have strong compliance requirements have the ability to contact lawyers and interpret complicated business verticals it's not something easily attainable through low density solutions providers.
When we are contacted about the possibility of providing a small website, we will already be thinking in terms of the following;
- Is a WYSIWYG DIY website implementation sufficient for their needs in the short term and long term; WordPress, WIX, Squarespace?
- Will the customer benefit by having us involved implementing a slightly less well known CMS solution, in exchange for a more experienced and friendly management approach to the solution?
- Will it be better to just put together a very simple solution and I technology that we can help the customer upgrade in future? This is not only in terms of the website itself but in terms of connecting up different data content management solutions in and off the website
- Can they use a low density solutions provider?
We are always receiving offers from companies to build an app for us. So definitely applications outside the skill set that we would never attempt to undertake and so it seems strange to think that companies spam individuals and businesses offering to build them any app that they want. This already shows high enterprise density thinking in that understanding what can and cannot be delivered is putting your customer first.
Another way to think of this is that most requests to a company won't necessarily completely align with the skill set within the solution provider. That solutions provider will need to think how attainable the knowledge gap will be doing the implementation of a customer's requirements. This could itself be outsourcing or upskilling within the provider itself. It could be that the solution provider has equivalent skills in a slightly different technology stack, but we should be confident that substandard technology solution is not being offered.
Without naming the business or business vertical, we have been in communication with a company wanting an app that connects providers with representatives to help them manage their capacity and reduce costs. They are starting small and trying to approach their needs with a low enterprise density implementation that sadly, won't work. We have scoped out their requirements and estimated it will take three months to provide a reasonably comprehensive first-phase implementation.
If they went to an app provider from a low enterprise density region, we already know how this solution would be implemented. It would be a terrible database connected to each app without any thoughts to scalability and reliability. There would be no upscaling planning to facilitate the platform growing as the customer base grows. The app provider wouldn't be able to discuss monetisation strategies either.
Give some examples of lower density solutions for higher density requirements?
Application Insights overview reporting
Both working within Azure application infrastructure can benefit by adding app insights to log operations within the applications and to also manage errors in a more coherent manner. The challenge comes when businesses aren't necessarily using Azure for the entirety of their application infrastructure. Even where they are - tying the entire application architecture into Azure Application Insights is creating a lot of dependencies on their application infrastructure.
The solution to this it is to create a bridging API or service that can accept a basic set of information on application operations. Building a small website display these items on the dashboard in an informative manner. The solution could be containerized and redeployed across multiple server instances if required.
Adding extra payment handling solutions for your customers
We recently put together a payment processing solution providing resilience to accepting payments from customers. There are several drivers for this, the main one being to be able to handle digital exchanges of value more securely with less overhead then using Fiat based payment providers (merchant and payment processors).
Was technically being a cloud based solution these are bespoke to the needs of individual customers being more patterns based than differently tiered capacities. Meaning we aren't looking at charging in terms of bronze silver gold. The company themselves can take the solution on themselves and manage it without us retaining the full Intellectual Property. That we can interact with different upstream systems and provide a data architecture to integrate with their systems, and provide training is a lower density solution for higher density requirements.
AGI for building tech through third party solutions providers
It is now possible to build applications where we can use AI to generate small blocks of functionality and assemble them together reducing the time spent developing code manually. This requires senior level expertise in developing solutions and shouldn't be outsourced to low enterprise density providers, despite the fact that using AI to generate individual blocks of functionality is relatively low enterprise density. We are therefore looking for experienced solutions providers so embrace new approaches to building technological solutions.
A great example of where a higher enterprise density organisation can work with AGI is to mount source mid to low size application solutions two organisations they know have operated in a high enterprise density environment but are embracing AGI.
In conclusion, we should look at our own organisation in terms of what we deliver and the needs we have. We should try to understand where we have low enterprise density needs versus high enterprise density needs. We can outsource low enterprise density needs to relatively low enterprise density solutions providers because we aren't complicating the required implementation.
In most situations outsourcing overseas will fail because the focus has been purely based upon lowering the cost base. We say always question insourcing and outsourcing. Organisations should be quick to recognise when their in-house capacity cannot deliver solutions for them.
Whether you are an individual considering a new business, a mid-sized enterprise look to add new services to offer to your customers, or a large enterprise trying to streamline your operations, adopting and structured approach on when to outsource and wait to outsource is of paramount importance.