How Industry Upstart Softtek Drives Technology Innovation
Global technology services provider Softtek has built its business on delivering innovation. Whether it’s helping a restaurant chain redefine the way diners order and pay for their meals, or working with an airline to enable a seamless travel experience, Softtek applies modern cloud-based and mobile applications that allow customers in a wide range of industries to fundamentally reimagine their operations. And while innovation is essential, security, stability and efficiency are also critical. Many initiatives involve transitioning away from outdated “legacy” systems to leverage emerging digital, Artificial Intelligence and automation technologies to reduce costs, improve productivity and enhance security.
The company’s success stems in large measure from its ability to offer customers what they aren’t getting from the traditional “offshore” model of IT outsourcing. Under the offshore approach, large teams of India-based workers engage in clearly defined tasks spelled out in an extensive and detailed services agreement. The premise is that Indian firms can leverage the competitive advantage of large pools of highly skilled, low-cost labor to provide customers cost-efficient service and technical expertise. But in many cases, the model doesn’t work as advertised.
“The past 20 years have shown that offshore delivery and labor arbitrage consistently fail to deliver,” says Marcos Jimenez, CEO of Softtek’s US and Canada operations. “The so-called ‘low rates’ of offshore resources are often offset by poor quality, inefficiency and low utilization of automation tools, resulting in a very high total cost. More importantly, the lack of innovation from offshore is costing businesses billions. We’re able to offer a different approach by committing to high-quality, highly innovative and highly automated IT services for the digital enterprise.”
Entrepreneurial Culture
Founded in 1982 in Monterrey, Mexico, as a niche technology services provider, Softtek initially focused on hiring entrepreneurial “associates” to incubate, grow and manage their own lines of business. The strategy was perhaps overly successful – by the mid-1990s, Softtek had become a loose collection of fiefdoms throughout the Americas. “The partners running the various businesses were very independent-minded,” says Jimenez, who joined Softtek in 1992. “As the company grew, we needed to consolidate and introduce a level of corporate governance.”
By the early 2000s, Softtek was reconfiguring itself as a larger, consolidated global enterprise. At about the same time, the company pioneered the development of the “nearshore” outsourcing model as an alternative to the traditional offshore approach.
Under nearshoring, service provider teams are located in Mexico and Latin America, rather than halfway around the globe. Through geographic and time zone proximity to their US-based customers, the idea is that nearshore providers are better able to collaborate, understand business requirements and quickly respond to requests.
Moreover, nearshoring has proven to be a good fit for “Agile” and DevOps software development methodologies, which require close collaboration between business and technology teams, and are designed to drive innovation, flexibility and speed to market.
A Changing Marketplace
While nearshore outsourcing might have some inherent advantages over the traditional offshore model, Jimenez says that the offshore/nearshore distinction is becoming largely irrelevant to sourcing strategies. “As the market matures, where the work is done isn’t important,” says Jimenez. “Rather, customers demand a service provider that can cost-effectively deploy digital technology, intelligent tools and automation, and scale up or down in response to new requirements.”
Indeed, these game-changing innovations are fundamentally redefining the delivery of technology services. The administrative and technical tasks traditionally performed by teams based in India are increasingly being handled by software tools programmed to execute rule-based functions. Today, a software robot trained to process basic healthcare insurance claims can take on the routine work of five to ten people. As a result, the competitive advantage of offshoring – large teams of skilled people working for low wages – is becoming obsolete.
Jimenez argues that Softtek is better able than the large, India-based providers to respond to the new reality of automation and Artificial Intelligence. “The Indian firms have been slow to adapt,” he says. “They need to redeploy hundreds of thousands of workers, and they need to worry about cannibalizing existing revenue as customers demand additional savings from automation and intelligent tools. We’ve never used the labor arbitrage model, so we can be more nimble with our customers.”
Commitment to Total Quality
Softtek’s ability to focus on quality and innovation stems in part from the way its agreements are structured. By working with customers on a fixed-price basis for a particular scope of services, Softtek has skin in the game to drive efficiency, as this translates to higher profit margins. The end result is a relentless focus on quality. “By treating every service ticket as a fundamental defect, and by applying ‘Automation First’ principles, we’re able to commit to a Total Quality approach where we’re measured by business outcomes and our ability to apply technology to accelerate business value. This helps us succeed, and provides the foundation for a true strategic partnership between us as technology providers and our business customers.”