IT Reshoring Helps Companies Regain Control and Flexibility
Driven by promises of dramatically lower operational costs and reduced capital outlay, many companies sent their Information Technology work off shore as part of vendor provided outsourcing agreements. Most of these outsourcing agreements did deliver on their promises of lower direct operational costs. However, what customers found is that there were hidden costs that drove the overall financial picture through the roof. Also, the outsourcing agreements proved to be less that flexible when customers wanted to change how work isdone or selectively move work back on shore to take advantage of new processing models and technologies like cloud and Software as a Service.
A recent Deloitte outsourcing study states 16% of outsourced off shore work is reshored annually. This is potentially 16% of a $300B market. There are several highly publicized cases where IT work has recently been brought back in house with General Motors, GE Capital and Bell South.
The Reshoring Challenge
When outsourcing agreements are initially developed, maximum effort is expended by customers and providers defining in detail the ownership of Intellectual Property and how it is used in outsourcing solutions. In reality, things begin to change before the ink is dry on the agreements. In most cases over the course of a 3-5 year outsourcing agreement, these solution changes are not reflected in the contracts, operational documentation and the domain knowledge that a customer requires about how their work is being delivered. This causes a huge hurdle for customers when they build their reshoring plans.
We recommend that customers use a structured diagnostic to define the gaps in their operational knowledge before they proceed with their reshoring initiatives. The scope of the diagnostic covers the following five key pillars of any outsourcing environment. These pillars are shown on the left hand axis of the following illustration.
A Recent Case Study
For a recent customer diagnostic we determined that they were currently in the “Worst Case” or “Typical Case” for all five pillars. Unfortunately, we see this situation quite often when we perform the diagnostic with clients. This puts them in a tenable position relative to developing a workable reshoring plan. We advise clients to remediate the deficiencies identified by the diagnostic while the outsourcing contracts are in full operational mode. This generates maximum support from the providers. We find that some providers may resist support during Reshoring Execution so that they prolong their ongoing revenues.
These same five key pillars will be defined over the lifecycle of the reshoring effort which includes the Diagnostic/ Remediation, the Reshoring Plan and Reshoring Execution.
Mark Smith and Mark Michalik are principals at Repatriate Solutions. They would be delighted to engage with you about IT reshoring plans and challenges.
More information is available at www.repatriate.solutions