An interesting article by Charles Fishman in the Atlantic magazine, in December discussed what it called The Insourcing Boom, an apparent return in the US to on-shore manufacturing. The article is about manufacturing, not services, let alone IT services. But if the trend that Fishman discusses is real, could it be that there’s a shift in attitudes about offshoring generally? He points out, probably rightly, that there’s an element of fashion in business practices. Will this affect IT Services too?
I’ll leave that question for now, and see what actual future research shows. But if there is a change in attitudes, then that should affect how IT service providers sell their offerings.
Fishman’s article highlights a number of negatives associated with offshore outsourcing, and although he is discussing manufacturing, some of those same issues have long been pointed out by my colleagues with respect to using offshore IT services. They include hidden costs, loss of intellectual property, loss of agility, slowness to market, and loss of feedback from the offshored production process to the designers back home. It seems that some companies have even eliminated the cost advantage from offshore labor arbitrage, and are producing some items more cheaply in the US than in China.
Offshore services are now more usefully called global delivery because they have become part of a sophisticated mechanism for delivering services from multiple locations. But providers of services that include elements of that approach should start to think about how they would deal with any change in business buying behaviour, if that were to happen.
Broadly, the changes needed would fall into two categories. Firstly, the labor arbitrage advantage should cease to be the benefit that is primarily stressed. Secondly, and more positively, service providers have to look more closely at the real and lasting business needs of clients, well beyond the immediate project and its costs. The business values pointed out in the Atlantic article — agility, speed to market, IP retention and feedback from production to analysis and design — are potentially real requirements. They may get overlooked in the highly formalized procurement processes that treat services as a commodity. Smart services sellers will be using their deeper relationships with clients to understand the underlying needs, and proposing solutions that meet those, which may mean a greater element of on-shore and on-site service delivery. My observation is that the smarter of the India-based providers, for example, are doing that already.
But staying in touch with the changing perceptions and buying behaviours of clients is the key. I’m sure that my colleagues and I will be researching this.
These blog posts will continue to look at the business of IT Services.
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