Acquiring digital capabilities: a co-sourcing model

Many organisations make the mistake of outsourcing their core digital capabilities. Co-sourcing is a better alternative, provided you do it right.

Published on
May 14, 2019
Reading time 5min
Two persons work together to launch a robot

Digital capabilities are the skills, knowledge and understanding of digital to create or consume value. For example, a bank uses its digital capabilities to create value by offering customers the ability to transact online. Customers use their digital capabilities to consume this bank’s value by checking their online account balances and making payments.

You can see how this relationship drives digital transformation. Businesses must match or exceed their customer’s appetite for digital value to compete in the marketplace.

To bridge this growing gap, a typical knee-jerk reaction is to buy new IT systems. But a system is just an enabler. By itself, it does not create value. To create lasting value, you also need to build capabilities around product development, analytics, digital marketing, and DevOps, etc. Tall order? Yes. That is why many organisations are enticed to outsource the entire thing altogether—a disastrous choice.

You can’t outsource core capabilities

A taxi operator in South-East Asia outsourced its data and app development to a company in China for a long time. This meant that nobody internally understood the details of the app. This was all fine when fleet management was the core competency. With the arrival of Uber and then Grab, the operator’s core competency shifted to customer experience. Unfortunately, the outsourcing model prevented the taxi operator to cope with the speed of the digital upstarts. Even simple changes took months to deliver. You can imagine the prospects for this company.

If outsourcing is not going to work, then you have to build your digital capabilities in-house. This includes focusing on:

  • Acquiring the right talent to unlock customer value and design new products and services.
  • Having a unified digital platform to speed up the delivery of new products and services.
  • Having the right infrastructure to support and maintain the new products and services.
  • Investing in building a healthy and innovative culture to inspire work.

In this article, we’ll focus on acquiring the right talent for digital transformation.

The co-sourcing approach

You have three options to acquire talent:

  1. Hire external talent with the desired capabilities.
  2. Train existing staff to acquire desired capabilities.
  3. Co-source and acquire desired capabilities with external talent.

The pros and cons of each approach are listed below.

Option Pros Cons
Hire external talents with desired capabilities. Brings a burst of new ideas and energy. Costly and takes time to hire the right talent and assimilate them with existing teams and culture.
Train existing staff to acquire desired capabilities. Introduces a new set of core skills. Costly (training costs) and can take a long time to change mindsets and see the desired results.
Co-source and acquire desired capabilities with external talents. Makes progress and builds capabilities at the same time. Cost-effective but needs management and operational oversight.

A quick glance shows that the co-sourcing model seems like a better option. In this model, external talent is integrated with the organisation on a long-term basis. The external talent could be an individual (e.g. consultant) or a whole function (e.g. call centre).

For example, a traditional agriculture company that wants to get into farming tech will take too long to organically build its digital capabilities. Having an external, talented team join the local team on a long-term basis can make things progress faster.

While co-sourcing seems to be a viable alternative, it has its risks. A big one is around intent. Co-sourcing is not just about delivering new products and services. It is also about acquiring the digital capabilities needed to transform the organisation. If this intent of the co-sourcing arrangement is not clear or deliberate, the arrangement might end up looking a lot like outsourcing.

Co-sourcing at PebbleRoad

At PebbleRoad, we’ve been offering the co-sourcing model for a few years now. Our double-loop digital transformation approach means that we have two types of outcomes: product and transformation. The first loop caters to digital products and services, while the second loop focuses on organisational transformation. Some of our long-term engagements are ending and we are proud to see the teams we worked with grow and thrive without us.

Here are some things we have learned so far.

  • Be clear and deliberate about the co-sourcing intent: Keep repeating that the intent of this model is to grow capabilities. It is easy for this purpose to get lost in the rush of everyday activities. We make it a point to repeat the intent during standups and progress update meetings.
  • Include a manager role in the team: Have someone responsible for everyday coaching and mentoring to sow the seeds for long-term progress. Our product teams include a Product Owner whose responsibility is to coach and groom the client’s team on a regular basis.
  • Have a separate knowledge-transfer track: Have a cadence of knowledge-sharing activities. Apart from daily standups and weekly debriefs, we also plan for regular training sessions. This is supported by playbooks for the team to refer and update on their own.
  • Insist on co-location where possible: Having both teams occupy and share the same infrastructure on a daily basis helps build a culture of working that makes it easy for ideas and knowledge to flow. For one of our projects in Indonesia, our team spent a substantial amount of time with the local team. Glad to see so many friendships develop from this project.

While it is true that the co-sourcing model offers some relief in terms of acquiring the digital capabilities needed to accelerate progress, you cannot forget about the transformation required in your leadership, work processes, unified digital platforms, infrastructure and broader work culture. Ignoring these will just increase your organisational debt and stop you from achieving the organisational transformation you desire.

Maish Nichani
Maish Nichani
Engagement Director

I enjoy helping organisations achieve their potential in an ever-changing and complex world. I lead product and transformation conversations.

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