The argument for reshoring has been made in countless enterprise information technology (IT) meeting rooms over the past few years. First suggested as a way to bring back jobs and tackle falling wages during the Great Recession, reshoring continues to receive due consideration on the merits of agility and cost.
Today, we face a new global and technological order that is reshaping the reshoring discussion. Here’s what has changed:
- Inflation in China and India is driving up wages;
- The U.S. is rapidly becoming energy independent and regaining manufacturing momentum;
- The global economy is showing signs of growth;
- Technologies are converging; and
- The Internet of Everything is changing the way we do business.
In addition to these changes, IT is being transformed from a largely back-office, support function to a true business enabler. Instead of merely facilitating the processes of running a business, IT is increasingly driving—and in many ways, becoming—the business. This disruption, along with the promise of the cloud and other emerging technologies, is changing the conversation from one about the benefits of either offshoring or reshoring to one about which technology-driven services deliver the best business outcomes, no matter where they are located.
1.IT is becoming the business.
More than the potential cost savings offered by offshoring or reshoring, enterprises are interested in agility and the ability to assimilate user experience in how they define products and services. A company that once sold you new tires now wants to sell you tires-as-a-service, a concept that depends wholly on the integration of IT with the product itself and the company’s ability to automatically track your tire-consuming behavior. The role of IT in this model becomes an explicit part of the company’s offering as it serves your needs as a tire-user and facilitates an ongoing relationship with the brand.
As IT permeates goods and services—from tires to watches to insurance—it is changing the way companies are conceptualizing, selling and servicing them. Because technology can be used to design goods and services that build customer loyalty, IT is becoming the force that drives market growth. In 2012, General Motors CIO, Randy Mott, said, “Real innovation happens when IT tightly aligns to company strategy.” Now, in 2015, we are seeing an even deeper cohesion in which IT is the company strategy.
As IT increasingly permeates and defines the business, IT sourcing activities will be of much greater significance to the business leaders at the enterprise level. Service providers that are capable of providing advanced engineering and IT-leveraged agility and responsiveness—not simply cost savings—will be the providers of choice.
2.Cloud services are disrupting the way enterprises leverage IT in their operations.
When India heritage companies began delivering back-office IT services 25 years ago, they changed the industry pricing structure. Companies were quick to take advantage of the cost benefits made possible by the labor arbitrage inherent in the outsourcing of back-office IT functions which then were considered to be non-core to the business. IBM, Accenture and other global service providers soon established large pools of talent in India to compete in the race to offer savings. For nearly two decades, the India-based software services industry grew on the basis of an IT-enabled disruption and the coming of age of the Internet and an improved connectivity infrastructure
The evolution of X-as-a-Service has prompted a race to move these outsourced and offshored applications to the cloud. RightScale’s 2015 State of the Cloud Report found that 93 percent of its respondents are already using the cloud – whether private, public or a combination of the two. Analysts predict cloud spending to exceed $250 billion by 2017 and revenue from software-as-a-service and cloud-based application services to grow from $13.5 billion to $32.8 billion at a compound annual growth rate of 19.5 percent.
Today, cloud and other emerging technologies are changing the way back-office IT and mainstream enterprise applications are hosted, delivered and serviced. New, cloud-enabled, service-oriented architectures deploy technology as a series of re-usable, standardized business services, giving rise to very responsive, agile and flexible systems. Support costs are going down, and companies are building their back-office IT functions as portfolios of integrated services to adapt to an evolving business landscape. In this environment, it’s no wonder that recent numbers show that Indian IT service providers, long dependent on low-cost labor, are experiencing lukewarm growth.
Will these changes upend the traditional model of sourcing and spread service delivery to all corners of the globe?
In the next 24 months, we will see the following:
- IT will be squarely in the front office;
- The gap between Information Technology and Operational Technology will narrow;
- IT-savvy leaders will leverage technology even more to run and build the business;
- IT will be sourced as a service;
- IT costs will decrease by 30 percent or more, and performance will improve dramatically.
3.Innovation–rather than cost benefit–defines the future of service.
More than anything, the pressures of globalization—what Thomas Friedman defines as the “inexorable integration of markets, transportation systems, and communication systems”—will force businesses to innovate or die. India, China, East Asia and politically stable parts of Africa will leverage the democratization of technology and the innovation of IT to adapt products and services for their respective markets. As markets expand, most enterprises will experience growth on a global level, with those in the emerging economies experiencing the most accelerated growth.
Sourcing decisions for the increasingly core IT functions will be based on a provider’s ability to offer product or service differentiation. As companies seek to customize their offerings, IT and engineering service delivery will migrate closer to customers and end users for increased responsiveness and tighter alignment with market needs. IT-enabled differentiation in a global market will be defined by local context, with services offered close to the consumer in a way that prioritizes agility over cost savings.
Offshore or reshore? That is no longer the question. The future of service provision lies in our ability to harness the power of increasingly sophisticated and intelligent technology to meet customer and end user needs quickly, efficiently and responsively—while leveraging multi-locational talent pools for developing prototypes, perfecting working models and, ultimately, delivering operational and service excellence.