Value Will Be King

Filed in archive Outsourcing Issues on October 7, 2008

Photo courtesy of iStockphoto, David Parsons

Writing in IT World Canada, Arpit Kaushik talked about the end of the "golden age of offshore outsourcing and the beginning of the age of truth and rationality." The article is part doom-and-gloom and part hope, in many ways similar to the analysis of a forest after a major forest fire. After such a cataclysm, the "dead wood" is cleared, strong trees are injured, but survive, and new shoots will reinvigorate the forest. What is the fertilizer for such new growth? In a word, value.

In recent years, outsourcing and offshoring was all about labor arbitrage - reducing high-cost headcount with offshore headcount at some multiplier. Theoretically, the idea made lots of sense, but survey after survey have shown disappointment in the overall cost-benefit ratio, missed targets and business problems exacerbated by long "supply lines" (if information is the supply, communications is the supply line).

After the "fire" that is the financial crisis ebbs, the outsourcing world will change. Even Forrester's own John McCarthy has said that the scale of the crisis has rendered all previous studies, including their own, "redundant. Companies that fed upon maintaining these inefficiencies will die - they are the "dead wood" of outsourcing. The "strong trees" will survive, and many new "shoots" will spring up. The most successful of those shoots will offer true value that exceeds their costs.