Adapting IT Sourcing Strategies to the Changing World

Adapting IT Sourcing Strategies to the Changing WorldThe events of the last two years (COVID-19), the last 100 days (war in Europe), and the last five weeks (another lockdown in China) have caused companies to reassess their sourcing strategies. For many carriers, especially midsize and larger, it was almost a foregone conclusion that global resources would be a central component of their IT resourcing strategy.

The strategic focus on global sourcing was done for cost reasons, for organizational scalability reasons, to expand technology capabilities, and, sometimes, to improve processes. Even if a company didn’t directly source their teams, many IT services providers have a large percentage of globally located resources, which require CIOs and their boards to have additional risk identification and mitigation strategies.

As for any IT endeavor, results varied depending on insurer, partner, and use case. From time to time, alternative models were discussed, e.g., rural sourcing, but these did not approach scale and success with resources external to the U.S.

With no near-term end in sight to international political and economic volatility, Aite-Novarica has heard companies not simply asking tactical questions (“Do we have the right partner?”), but rather asking far more fundamental questions such as, “From a risk perspective, do we need to reevaluate our resource models and move to have more work accomplished in the U.S. or North America?” 

An additional global issue is inflationary pressure. We have heard CIOs share their concerns over potential rate card shocks when current contracts expire. Add all of these complications together and traditional sourcing models, as well as service partners with heavy allocations of resources in one location, are feeling the pressure. 

Making major changes to global sourcing models shouldn’t be taken lightly, but the risks are real and intense—and they will only keep intensifying. Insurers and IT services providers should be prepared to evolve quickly.

So what can these organizations do to foster that evolution? There are a couple of options:

  1. Companies can follow the, “More BMWs Being Built in South Carolina” model. That is, a foreign corporation makes large-scale investments in the U.S. From the IT supply chain perspective, this has occurred in the past. For example, TCS made investments in Cincinnati, and Infosys invested in Des Moines. Increasing this type of investment may prove prudent for a global systems integrator for many reasons. Less drastic, but also effective, is spreading the geography of resources from a central location to multiple locations around the globe. In fact, some service providers have started communicating their resource counts and locations in more granular terms than on- and offshore.
  2. Companies may stop requiring a four-year degree for every role. A four-year computer science or electrical engineering degree will continue to be the gold standard for many roles, but some companies may decide a silver standard is totally fine for certain roles. Options may include internal employees taking aptitude tests for more technical roles, hiring graduates from community colleges, or offering extensive online training. Employers may determine that, for some technical roles, the resources they are seeking are closer than they realized. Similarly, service providers may start to recruit less-experienced industry professionals and run them through their own boot camps to accelerate their development.
  3. Companies and service providers alike may move to retirement-isn’t-binary models. From a purely economic perspective, the current model of an employee going from 100 to 0 on a particular day doesn’t make sense. It is especially foolish when the employee goes to zero after accumulating knowledge, experiences, and (yes) lessons learned from a few mistakes along the way. Companies may find themselves constructing ways to have employees go from 100 to 50 or 25 and find that path far more rational.   

The world is uncertain on many fronts, but when it comes to adapting insurer IT resourcing strategies, there are some solid options available. To learn more about the IT services providers active in the insurance space, read our latest report, IT Services Providers for Insurers: Vendor Analysis Report.

If you would like to discuss this blog or the IT services report, please contact me at [email protected] or my colleague John at [email protected].

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