A recent special report in the Economist focused on the general state of the offshore outsourcing industry, with a particular focus on the emerging trend of companies relocating the performance of IT services from offshore locations to locations closer to home in the United States (known as “re-sourcing”). The report cites a number of reasons for this trend, such as the increase in wages in offshore locations, performance issues by offshore service providers, and the inherent challenges posed by the distance between a U.S.-based customer and the offshore service provider. The Economist isn’t the only one to take notice, a recent article on CIO.com cited a number of similar factors contributing to the new attractions in keeping outsourced resources stateside.
The Economist notes that 67% of American and European outsourcing contracts have some element of offshore outsourcing, so most customers with any sort of outsourcing agreement are impacted by the changing landscape of the offshore outsourcing industry. However, deciding to move services back from an offshore location isn’t as simple as flipping a switch (or sending a notice of termination). There are major risks in terminating and transitioning IT services, and the service provider, having been notified that their services are no longer required, is hardly in a motivated position to help mitigate those risks.
Common risks associated with terminating an outsourcing contract include potential disruption to, or degradation of, service, loss of critical resources (e.g., people, equipment, software) and loss of historical knowledge relating to the impacted environment (i.e., scant or insufficient knowledge transfer by the service provider to the customer or the successor provider). Put another way, at the time when the customer is most vulnerable to service disruptions and unanticipated costs, the service provider has the least incentive to provide quality assistance and services. The question that follows is, what can a customer do to protect itself from the pitfalls of re-shoring services either by taking the services in-house or sourcing them to a successor provider?