Navigating the Tech Industry's Profitability Shift: The Hybrid Outsourced Services Team (HOST®) Advantage

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Introduction

In the ever-evolving landscape of the tech industry, a seismic shift is underway, marked by a transition from a growth-centric approach to a heightened focus on profitability.

AlixPartners’ August 2023 survey of 140 tech executives illuminates this trend, revealing crucial data points that underscore the industry’s strategic reevaluation. As companies grapple with higher interest rates, a demand slowdown, and the aftermath of pandemic-era over hiring, the need for innovative solutions becomes paramount.

Data-Driven Insights: A Paradigm Shift in Focus

The AlixPartner’s survey data reveals a significant shift in mindset, with “72% of respondents prioritizing profitability over or equal to growth—a notable increase from 56% over the last 24 months.” (Goldsmith et al., 2023)

Remarkably, “38% of respondents plan to focus on profitability gains over growth in the next 24 months, and a staggering 88% anticipate accelerating profitability improvements and cost-management strategies”. (Goldsmith et al., 2023) According to the authors, “this shift is propelled by three key reasons: higher interest rates causing a cash crunch, a slowdown in demand due to inflationary pressures, and the repercussions of pandemic-era over hiring.” (Goldsmith et al., 2023)

Bar graph showing Balance Between Growth and Profitability

The Struggle for Positive Cash Flow and Headcount Reductions

 

AlixPartners’ data further reveals that maintaining positive free cash flow has become critical, particularly for small- and mid-cap tech companies with less scalable operations. The need to simplify business processes and optimize operating models is emphasized to turn a profit, improve cash positions, and de-leverage the balance sheet.

The survey unveils a challenging reality, as “72% of tech companies have executed some form of headcount reduction in the last 12 months, with more than one-third cutting over 5% of their staff”. (Goldsmith et al., 2023) As large tech players like Meta and Amazon course correct to rebalance operating profits, the lever most utilized is a headcount reduction. However, the limitations of headcount reductions become apparent—they offer a near-term uptick in profitability, but the deliverables remain the same.

Bar chart showing actions taken to improve profitability

The SCRG Hybrid Outsourced Services Team (HOST®) Solution: A Case Study in Success

Enter HOST®, a vendor-managed services solution from Supply Chain Resources Group (SCRG) that exemplifies the optimal strategy for navigating these challenges.

The HOST® model allows for some or all the client’s engineering and operations workforce to be variable in cost and time to augment their staff and workload. These personnel are then deployed to strategic manufacturing locations to optimize supply chain engineering operations. HOST® enables clients to realize cost savings via headcount reduction while maintaining deliverable output and realizing fully leveraged offshore manufacturing.

HOST® Case Study Success Metrics:

The case study of a blue-chip client in the consumer technology industry with a vast product portfolio showcases HOST®’s transformative impact. Faced with the need to reduce workforce financial burden and streamline recruitment management, the client turned to HOST® and achieved impressive results.

• The customer utilized the HOST® talent-on-demand services across 5 countries within 3 weeks.
• No initial liability, no recruiting fees, and no risk of hiring poor performers.
• Variable cost model for scalability.
• Resulted in $2.3M in ongoing savings.
• Additional $1.8M/year labor utilization improvement benefit.
• Rapid hiring and rating increased On-Time Delivery (OTD) by 20%+ with yields rising by 14% on average.
• Established a 7+ year ongoing relationship with SCRG.

Embracing Transformation for Sustainable Profitability

As tech companies navigate the complexities of transitioning from growth to profitability, the need for transformational operational change becomes evident. AlixPartners suggests developing a portfolio of initiatives that can drive more than a 20 to 30% improvement in the cost base—an achievable goal, as demonstrated by HOST®.

 

Conclusion

In the dynamic realm of the tech industry, where the tides are turning from growth-focused strategies to a concentrated emphasis on profitability, the findings from AlixPartners’ August 2023 survey bring to light a significant transformation. As companies grapple with economic challenges, the need for innovative solutions becomes paramount. The survey illuminates a noteworthy shift in mindset, with an increasing number of tech executives prioritizing profitability overgrowth.

The struggle for positive cash flow and headcount reductions is evident, underscoring the industry’s quest for sustainable financial health. Amidst these challenges, the SCRG Hybrid Outsourced Services Team (HOST®) solution emerges as a beacon of success. The case study of a blue-chip client highlights HOST®’s transformative impact, showcasing tangible benefits such as rapid hiring, cost savings, and improved operational efficiency.

As tech companies navigate this landscape of change, embracing transformation becomes crucial. The HOST® solution from SCRG stands out as the optimal choice for those seeking sustainable profitability, providing a model that not only meets but exceeds the demands of the evolving tech ecosystem. HOST® exemplifies the potential for transformative operational change, offering a promising path forward in the pursuit of lasting success in the tech industry.

Pete Mikhjian
Pete Mikhjian

Chief Revenue Officer

Author: Pete Mikhjian, CRO

Pete Mikhjian joined SCRG in 2023 as Chief Revenue Officer, overseeing the global sales organization. He brings more than 20 years of experience in business development and engineering across diverse manufacturing markets. Pete is responsible for driving sales strategy and identifying and developing opportunities in new and existing markets for SCRG.

Connect with Pete on LinkedIn.

Published: January 18, 2024

Supply Chain Resource Group (SCRG) is a global market leader offering Strategic Workforce Solutions to some of the world’s most exciting brands. SCRG’s sweet spot is bringing highly skilled engineering talent to solve complex offshore manufacturing challenges. Our clients are OEM’s producing intricate technology-led products that use our vendor managed solutions to increase speed to market and manage costs. Whether you need to audit your existing suppliers, find new ones, manage logistics, understand Cost Downs, DfX or FMEA, we can help. Connect with the company that has been reinventing supply chains for household name brands since 2008.

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