The current pandemic increases requirements for remote work and home office. It seems commonly accepted that remote work from home will remain a popular option in a post-Covid-19 future. Combining this change within the company (intra-organizational) with typical outsourcing scenarios, involving a client and a service provider (inter-organizational), we expect lasting implications.
These effects will range from altered modes of outsourcing management and collaboration to the need to recalibrate the balance between formal and relational governance to changes in offshore vs nearshore preferences vs onshore outsourcing.
Covid-19 enforces home office and increases virtualization of collaboration within and between organizations
Much effort goes into investigating the effects of remote work, mainly working from a home office using proper virtual workplace tools, on companies and employees. Studies and public opinion agree that the post-pandemic work environment will include by far more use of virtualization and remote work as before.
Fig. 1: Working from home is getting the new normal due to the pandemic
For example, a Pew Research Center report "How the Coronavirus Outbreak Has – and Hasn't – Changed the Way Americans Work" shows how the current pandemic has pushed employees to work from home and how they use modern virtualization techniques. The authors of the study highlight that even after the pandemic will be over, a significant part of the work will remain being done from home.
The report states "and more than half say, given a choice, they would want to keep working from home even after the pandemic" – all this being said while having learned that "meeting deadlines and completing projects on time" was "very easy" or "somewhat easy" (confirmed by 80% of respondents).
Fig. 2: Views of American workers on home office as presented by Pew Research Center
To the best of our knowledge, all the studies investigating Covid-19 and the rise of remote work focus on the effects of employees, freelancers, or consultants working in and for one company, i.e., most studies so far have concentrated on intra-organizational scenarios (INTRA-org).
Fig. 3: Intra-organizational scenario, all remote workers belonging to the same company
We at pliXos as well as HCL are involved in managing distributed teams for application development/DevOps in global outsourcing scenarios. Teams are usually spread over countries and continents in offshore or nearshore outsourcing arrangements. The effective use of virtualization, collaboration tools such as videoconferences, chats, is business as usual, as is the use of agile processes.
Historically, measuring and optimizing efficiency, relationship quality, or other critical aspects for improved project delivery have mainly focused on the interaction between the customer and the service provider, i.e., at the inter-organizational relationship.
Fig. 4: Inter-organizational scenario, a customer interacting with a service provider
As expressed before, due to the pandemic, managing this client-vendor setting becomes more complex by a full distribution of staff to home office, on both the customer side and the service provider side. While the inter-org relationship has already been – to a greater or lesser degree – virtualized, particularly in nearshore and offshore outsourcing arrangements, this virtual outsourcing management now gets stretched by the virtualization of the intra-organizational structures within the partners.
While we know from other studies, that this virtualized setup per company alone already has significant effects, it will have even more, and different consequences in a "two-dimensional" (i.e., INTER-org and INTRA-org) virtualized outsourcing scenario. In an upcoming study, we intend to analyze and better understand both the positive and negative implications and the necessary adaptations of outsourcing management at a strategic, tactical, and operational level necessary to make these scenarios successful and mitigate the newly arising frictions and risks.
Fig. 5: New combination of INTER-org and INTRA-org virtualization in sourcing scenarios
We have developed a few hypotheses about how outsourcing management will (have to) change in a virtualized world of work and collaboration.
2.1 Two-dimensional virtualization will increase the acceptance of global sourcing
The current pandemic has shown to have a substantial effect on what people believe to be the right mode of working and collaboration. Managers and staff have learned about the potentials (and limitations) of virtualization – many have experienced that it is much more effective and efficient than anticipated. In congruence with many studies published in these days, we believe that the post-pandemic world will show a substantially higher level of virtual work than it used to be before 2020.
This increased level of virtual collaboration both within and between organizations will make the perceived differences between "us" (internal colleagues) and the "others" (vendor staff) smaller. It will reduce barriers in collaboration and exchange at all levels and thus eliminate perceived organizational boundaries. This will increase the acceptance of outsourcing in general and of global sourcing (since it is no longer relevant where a person is located) among managers and staff. Higher acceptance of outsourcing, in turn, will at least facilitate – if not drive – the establishment of new forms and models of sourcing arrangements.
A contradicting effect might come from the search for resilience. Firms have learned about the potentials of virtualization and the criticality of digital and institutional infrastructures as well as the importance of strong business continuity capabilities. Firms have also learned which countries are competent in managing crises and which are not. Thus, we might even see a shift away from offshoring to more nearshoring, at least. Our focus and argument is, however, on the, presumably positive, impact of virtualization of work.
2.2 Outsourcing relationships will benefit from two-dimensional virtualization
As described above, perceived differences between internal and external collaborators will diminish due to intra- and inter-organizational virtualization. Although overall virtualization might negatively affect personal and (purely internal) team productivity, it will also lead to an increase in outsourcing collaboration performance. The "equalization" of cross-organizational teams (involving members from client and vendor, or even from multiple vendors) will reduce the level of "formalism" in a team (if well-governed) and thus increase communication quality, trust and openness, and team productivity.
For instance, it will also increase agile work approaches' effectiveness because a daily standup will now be purely virtual and not make a difference between people standing in the room and external developers being hooked up from remote. Therefore, while the INTRA-org effect of virtualization on productivity might be (slightly) negative, the INTER-org effect will likely be positive – depending on the project setup, this might lead to a positive aggregate impact.
These effects will, of course, be contingent on time and individual experience. The Pew reports mention: "On the downside, 65% of workers who are now teleworking all or most of the time but rarely or never did before the pandemic say they feel less connected to their coworkers now. Among more seasoned teleworkers, only 27% feel this way." From this, we can derive that the adverse INTRA-org effects might improve over time.
2.3 Two-dimensional virtualization will require a new blend of formal and relational governance
Good outsourcing management requires a well-adjusted balance of formal and relational governance mechanisms. Of course, clients have to monitor the performance of the vendor to some degree and ensure that contractual agreements, such as SLAs, are met (also IT Security aspects will likely become even more crucial and in-focus). On the other hand, outsourcing relationships can only be effective if both parties put considerable effort into relational governance or what we call the management of the "soft factors", such as fostering an informal collaboration culture, knowledge exchange, open and trustful communication, or applying motivational incentives and gestures towards staff members on the other side.
In an earlier research project together with Prof. Beimborn from the University of Bamberg, we have developed a toolset for defining and measuring the quality of this relational governance (e.g. refer to www.uni-bamberg.de or www.plixos.com/news.
We believe that to manage outsourcing relationships successfully in a two-dimensional virtual setting will require a re-balancing of formal vs relational governance. As internal and external collaborators will sit together at the same (virtual) table, the use of formal governance mechanisms (such as screening reports and discussing individual (non-met) responsibilities), will become less effective, even risky, for creating a thriving project culture. Therefore, formal governance has to move to the background and new/more relational governance mechanisms (and appropriate leadership skills) will have to be put in place.
Further, we hypothesize that for successful outsourcing management, the relational governance has to be stretched to include the parts of each organization that have not been directly and too closely in contact with the respective other organization. For example, the business side of the client organization is now and, thanks to virtualization, can be taken into the loop more intensely. They become more part of the collaboration, which in turn can create new frictions if relationship management does not cover this new spot.
2.4 Sourcing agreements will be impacted
In line with the change assumed on governance by the two-dimensional virtualization, we expect a need to change sourcing agreements accordingly. Separation of concerns or obligations, e.g. deliverables by the service provider or the customer's obligations, are to be replaced by objectives and results of the team as a whole. How to define this from a legal perspective and ensure proper parameters (KPIs) to have every team member focused on the joint goal will be essential.
2.5 Two-dimensional virtualization will affect the use of collaboration tools between vendor and client
Tools for virtual collaboration have reached maturity over the last few years and they have received another boost during the pandemic, particularly in unified communication including video conferencing. While outsourcing teams have worked very professionally with collaboration tools for many years, many teams have more relied on asynchronous tools, or different messengers/chat services. During the pandemic, the overall work culture has experienced a strong surge in the use of synchronous communication services, mainly of those for video calls and meetings. As collaboration in sourcing arrangement will further stretch to include more parties within the respective organizations (and even more than just one vendor), we expect to see a higher use of synchronous collaboration services in outsourcing than before the pandemic.
The new virtual work culture within organizations might change the old (virtual) inter-organizational work culture. Whether this has positive or negative effects on the productivity of teams and the quality of the projects' outcomes is open to an investigation (and debate…). In any case, it will be of high interest to investigate how the pandemic has changed the usage of tools compared to pre-Covid-19. Besides the change in the use of standard communication tools such as videoconferencing, chat or shared directories, we are especially interested in what requirements are not yet met by the tools that are currently available. What else is needed for improving the overall performance of large, globally distributed teams, e.g. in a DevOps environment?
3 Your opinion and expertise are highly valued
To empirically investigate the hypotheses and questions raised above, a neutral and scientific survey will be issued soon by the University of Bamberg – Faculty of Information Systems and Applied Computer Sciences. We would appreciate receiving your email address allowing us to share this survey with you.
Are you interested in participating in this initiative? We would be delighted to get in contact (E-mails see above).
Pew Research Center
Images from pixabay
Covid-19, Corona, pandemic, teleworker, remote worker, remote team, home office, digital nomad, virtualization, intra-organization, inter-organization, efficiency, governance, tools, agile, SW development, application development, DevOps, outsourcing, sourcing management, service provider, relationship