An Evolving View of Outsourcing
By Samuel Greengard
Only a few years ago, businesses couldn't get enough of offshoring and outsourcing. India, China, Costa Rica, the Philippines…Wherever there was a chance to save a few bucks, companies were there.
But, alas, the concept of sending labor and tasks overseas hit a few snags. For one thing, wages in these countries spiked as American and European companies stampeded in. This is a function of basic economics, and it was entirely predictable. For another, service levels often lagged and dissatisfied customers frequently complained. As a result, many businesses have recently pulled the plug and brought operations back to the U.S. The list includes NCR Corp., The Coleman Co., Ford Motor and Peerless Industries.
Although no CEO or senior executive team is likely to admit it, many of these firms got caught chasing after dollar bills and didn't know exactly what they were getting themselves into. Deloitte's 2012 Global Outsourcing and Insourcing Survey notes that a lot of executives remain confused about outsourcing versus offshoring. Many still see the two processes as inseparable, even though outsourced work frequently doesn't leave the originating country. Deloitte also found that vendor management organizations, while highly competent at day-to-day activities, are underutilized when it comes to driving strategic value.
Savvier executives are now taking note. They're becoming more strategically selective about outsourcing. Some are turning to multisourcing—using multiple partners within a single, interconnected environment—and increasingly relying on captive offshore centers that operate under the supervision of the company rather than a third party.
Not surprisingly, CIOs play a key role in integrating and orchestrating the IT systems to make these environments function effectively. Moreover, senior IT leaders must apply these same lessons to the next generation of outsourcing: cloud computing. It's critical look beyond CAPEX and OPEX lines on the P&L sheet. Chasing dollar bills all over again will lead to many of the same problems that companies have faced with offshoring and outsourcing. What's more, some of the cost savings associated with cloud computing will likely evaporate over time.
The takeaway? Using technology only to lower costs is a zero-sum game. Organizations succeed when executives, including CIOs, think and act strategically and holistically. Increasingly, this means cultivating partnerships and alliances that put the right business processes, systems and technology into play in the right places and at the right price points.