Technology leaders embrace outsourcing as a solution to resourcing and skills gapsSkills shortages continue to stalk the technology industry. Although not as acute as in the post-pandemic period, large proportions of technology leaders admit that skills shortages are holding them back. In this year’s Nash Squared/Harvey Nash Digital Leadership Report (DLR), AI tops the list with 51% of leaders reporting a skills shortage, but other areas rank highly too, notably big data/data engineering (36%), cyber security (33%), and cloud and platform engineers (26%). It isn’t just that these skills are hard to find – some technology leaders may not have the headcount room to recruit additional staff. Although a healthy 41% of technology leaders expect to see headcount growth in their teams this year, this is down from 50% in 2023. Budgets follow a similar pattern – with a slight fall in leaders expecting a technology budget increase, from 45% in 2023 to 39% now. While many digital leaders are still anticipating headcount and budget growth, the numbers have subsided somewhat in a tighter economic environment. The DLR shows us that for many technology leaders, at least part of the solution to this conundrum is outsourcing – using external solution providers for specific projects and activities. Over four in ten technology leaders expect their use of outsourcing to increase in the coming year, compared to 34% who say directly employed headcount will rise, and 29% who expect indirectly employed headcount (contractors, temporary staff) to increase. Only 15% of leaders expect outsourcing to decrease, a much lower proportion than those who say that of direct employment (25%) and indirect (20%). Tech leaders’ sentiment towards increasing outsourcing in the coming year has been backed up by Statista, that forecasts the IT outsourcing market will be worth £44bn in 2025, with a projected annual growth rate of over 9% from 2025-2029. Outsourcing attractions Given the cost of outsourcing as a solution, it may seem almost counter-intuitive that it tops the list at a time of economic caution. However, I believe there are a number of compelling factors that are putting it higher on tech leaders’ agendas. Firstly, outsourcing is very flexible. In times of uncertainty, having a resourcing model that can quickly ramp up and down as needed is appealing. Secondly, it’s easy. Most organisations, certainly large ones, will have agreements already in place with a number of consultancies and solutions providers that can be activated or extended when needed. It’s a quick and straightforward fix to a resourcing or workload issue. It’s a reflection too of how the barrier between what lies inside an organisation and what lies outside has lowered. Technology itself, like cloud and the productisation of software and business activities that previously were home-grown, has made it easier for some things, especially operational activities, to be done externally. The explosion in remote working has lowered the barrier even further. It is also a route to quality. With the right provider, backed up by precise SLAs and rigorous performance metrics, a buyer should be assuring themselves of a good outcome that achieves the goals and objectives set. It’s rather like the old saying that “no one got fired for buying IBM”. If you’re using a leading consultancy/solutions provider, you should be on safe ground. With ever more solutions specialists and niche providers in the market, it’s also possible to find support for practically any need – whether that’s a managed service, application transformation, cyber, data and AI, or cloud. There are often a number of wider benefits too. Beyond the immediate work they’re doing, a good consultancy will offer wider guidance, best practice insights and thought leadership on emerging areas such as AI. But perhaps equal to all of these factors in the current climate is that outsourcing doesn’t add to headcount – it’s just spend. As long as there is room in the existing budget, there is no need – or only a limited one – for difficult discussions with HR or other leadership. At a time when the cost of employment is rising through NI increases, and when IR35 changes are also making the use of contractors more complicated, contracting with an outsourced service provider becomes more attractive. Balancing resourcing models This is something we’re seeing ourselves at Harvey Nash, where increasingly more clients are asking us to put together a team of people under a services agreement, rather than to recruit individuals in different roles. It’s a variation on going to a services provider and is becoming a more common ask across the recruitment industry. That’s not to say other models won’t continue to be key. Indirect employment of contractors and freelancers remains another flexible tool that always grows when market conditions are tight. Meanwhile, organisations continue to hunt for the right talent to bring in internally. Tech leaders still place primacy on their own teams. Candidates with the requisite skills and experience remain in demand. More than anything, our findings underline that managing technology in a continually evolving environment is complex. That’s why technology leaders need to juggle multiple resourcing models and continually assess the balance as they strive to help their businesses modernise, transform and grow.
