A Vision on ICT Sourcing in Europe

The European Commission launched the “Grand Coalition for Digital jobs”  on March 4th this year to confront the paradox of mass (youth) unemployment versus the expected shortage in ICT skills in Europe. The Grand Coalition focuses on increasing the size of the IT talent pool, the efficiency of labor markets, mobility, training and education.

CIONET ran a Sourcing Poll together with one of our business partners Quint Wellington Redwood* in the spring of this year to assess how EU-based sourcing strategies could provide a perspective on solving this paradox and barriers organizations find. The initial findings are covered in this blog. We call upon CIONET members help fine tune the results.

According to Quint Wellington Redwood (an European based Independent Management Consulting & Education firm, with a practice that specializes in sourcing consultancy) the core element of this paradox is all about ICT professionals and the associated hiring and training. On the other hand, businesses fulfill their ICT Demand not only by hiring staff into their own organization, but also by looking at external sources. That is why ICT Sourcing should be considered as a complementary approach to resolve the e-skills paradox. It covers a wide spectrum of business models like co-sourcing, out-tasking, outsourcing and even the creation of joint ventures.

Sourcing decisions are made at an organizational level, by looking at what is in their best interest, balancing various internal and external risks with the available opportunities. Sourcing decisions have been made in the last decade in favor of non-European providers (especially in Southeast Asia), while the moral interest for ‘Impact Sourcing’ – outsourcing for social betterment –  within the European region has been growing.

If the sourcing decisions from businesses became more European based, this would have a direct positive effect on the European ICT services market and on employment in Europe.

Businesses have several options to fulfill their demand for ICT services, apart from training and hiring ICT professionals. Sourcing the ICT Demand by Businesses can be realized by choosing one or more of the following basic sourcing options as outlined in figure 1.

Figure 1 - Sourcing options to realize ICT Demand
Figure 1 - Sourcing options to realize ICT Demand

Organisations are balancing their business risks by choosing the appropriate sourcing mix as each sourcing option has its own specific risk / opportunity profile. This includes risks in the area of capacity, knowledge, scalability, ability to innovate and contractual obligations. Finding the appropriate sourcing mix is a key task of the CIO, taking into account the current realities of their business economics (generating ICT Demand) and their options for ICT Supply, including availability of ICT labor and external Services.

Regardless of  which sourcing option is chosen by the organization, it needs to be staffed at some point in the value chain. Business ICT Demand can generate staffing in the various options provided by the sourcing choices as outlined in figure 2.

Figure 2 - Staffing in the various sourcing choices
Figure 2 - Staffing in the various sourcing choices

By optimizing the sourcing options, businesses can reduce their HR risks and benefit from nearshore delivery models. Traditionally, meeting ICT demand is approached by hiring ICT professionals and to provide for continuous education. However, the external sourcing options bring additional benefits to the business:

  • Capacity sourcing helps to cope with fluctuations in demand, while using a contractual agreement that gives proper control over scalability and quality;
  • Specialist knowledge is hard and costly to maintain in-house (specialist experience even harder); specialist vendors have the appropriate focus to offer this at an attractive price/quality level;
  • Sourcing complete work packages to a vendor leverages team efficiency at the vendor side, who has the appropriate scale to optimize the internal resourcing process;
  • Service sourcing enables remote delivery models (also known as Nearshore and Offshore), which can bridge ICT Demand in one region, with the availability of ICT Supply in another.

In each case, choosing an external sourcing option will contribute to solve the Paradox on ICT Jobs in Europe and fuelling economic growth in general.

Can EU-based Sourcing Strategies indeed help reduce the European economic crisis? Choosing for Service Sourcing puts the European Service Providers in direct competition with vendors outside of the EU. Over the last 20 years, many European organizations have outsourced work to Asian countries for reasons of lower wages and availability of skilled resources. Due to the current economic problems within the EU, the opportunity to alternatively source within the European Union seems to increase.

The Sourcing Poll provided initial insights in what barriers organizations and Service Providers experience for conducting business in the European region. The results are:

Shortage in skilled IT resources (in volume or quality) is expected by 69% of the respondents in the next 1-3 years. This amplifies the need to discuss the potential for resolving the paradox of shortness in IT staff and declining graduates in IT versus the opportunity to source within the European Union in times of Economic decline.

Proper staff planning and recruitment planning in the local market, service sourcing from local service providers and offering traineeships and or cooperate with universities and other education institutes are popular methods to fulfill sourcing needs for ICT skills and services. Using local European methods is currently a popular method to fulfill sourcing needs and can be expected to grow within the current paradox. Proactive action to prevent expected shortness in these methods therefore seems valid.

Culture, language, presence and education level are identified as the most important advantages for European Providers of skilled IT resources/or services though the price seems to be the biggest blocking issue.

European actions need to be on the edge of the identified advantages and the identified barriers that need to be resolved. Other advantages identified by the group are common goal of a strong / competitive European position, local presence and the ease of work permits (though the combination of the advantages may come in only if European rules become mandatory in all countries).

Apart from the price barrier, language and presence appear to be an issue for other respondents to (increasingly) use European vendors. Availability of resources and the willingness to do the work that is being sourced are mentioned including the lack of service culture in Europe, the need for global vendors for global presence are mentioned.

The findings of the Sourcing Poll provide valuable input and recommendations for policy development. To further fine tune the results and recommendations we call upon CIONET members participate in a short telephone interview with our business partner Quint Wellington Redwood. We aim that the results will give organizations a better insight how to coup with their own EU Sourcing strategy.

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