February 29, 2012: The main driver behind offshoring of Information Technology Services is cost reduction. This statement gained importance during the start of the outsourcing era, but today there are far more advantages than just cost reduction.
Many of the studies have found that the cost advantage arising out of offshoring is declining. According to the survey by Duke University, the cost savings from outsourcing will disappear within 3 years.
In a study conducted by ORN (Offshoring Research Network) in 2010, 53% of the corporate executives responded that offshoring resulted in access to qualified and skilled workforce. In 2011, this declined to 40%. 46% were of the opinion that this was due to improved service quality due to offshoring, during 2010. But in 2011, this fell to 41%.
In such a situation, it was clear that none of the above were the important reasons for companies’ offshoring their IT functions. Most of the companies that off shored their business functions were of the opinion that, offshoring had helped them to achieve flexibility and agility in their operations and thus fight competition during unstable economic condition.
According to Arie Lewin, Director of CIBER, cost reduction is not the main driving force behind offshoring anymore. The business organizations in the developed economies including US and Europe outsource their work to offshore destinations in the areas such as Information Technology and maintenance and innovation process. The most preferred locations for offshoring are India, China and Philippines.
In the survey by ORN, it was found that 48% of the respondents were of the view that offshoring helped them to achieve organizational flexibility and this figure jumped to 66% in 2011. Companies engaged in offshoring of their business functions said that achieving agility was among the top three drivers of offshoring.
Even among the organizations that did not consider agility as an offshoring driver, offshoring had led to flexibility and agility in their operations.
Organizations with a specific delivery model where the delivery centers are spread across various locations helps to improve flexibility and unprecedented events such as infrastructure failure and fluctuation in currency rates. Such companies were reported have more than 2.5 times organizational flexibility when compared to organizations without such a strategy.
In the case of organizations with enterprise strategy enjoyed 1.7 times more chances for improved flexibility when compared to organizations with regional or business level strategies.
Organizations in the United States have started to realize that a global sourcing strategy is an essential part of the corporate growth strategy. Lewin says that organizational flexibility is critical for companies as the current business world is highly dynamic and competitive.