anti-offshoring pressures and offshoring of it and business processes survey results

EXECUTIVE

SUMMARY

SURVEY ON: ANTI-OFFSHORING PRESSURES AND OFFSHORING OF INFORMATION TECHNOLOGY AND BUSINESS PROCESSES by Shaji khan and Dr. Mary Lacity

Acknowledgements: We are grateful to the 84 respondents for participation and Everest Group for facilitating this survey.

Copyright © 2012 Khan and Lacity

Parallel to explosive growth in offshoring1 of Information

Technology (IT) and Business Processes (BP), we have

also witnessed a growing backlash against offshoring and

resulting pressures on organizations to curb their

offshore engagements. Yet, it is unclear how

organizations are dealing with and responding to such

anti-offshoring pressures2? To gain a better

understanding of organizational responses to anti-

offshoring pressures, we conducted a survey of buyer

organizations with the help of Everest Group during

September – November, 2011. The survey revealed some

interesting insights. Key findings are summarized below.

Overall Extent of Offshoring: On average, there

seems to be no indication of an overwhelming drift

away from offshoring as a result of anti-offshoring

pressures.

A majority of respondents disagreed that their

organization is scaling back or putting on hold

originally planned growth in offshore delivery of IT

and BP services

A majority also disagreed that their organization is planning to avoid (at least within the next 12 months) longer term offshore contracts as a result of anti-offshoring pressures

Service Provider/Location Selection: On average,

we did not find any apparent preference for only

those offshore majors that have sizeable presence

in buyers' home country.

Respondents did indicate some preference for global

majors who can provide flexibility to move offshore

work back to organization’s home country in case of

severe anti-offshoring regulation

The impact of service provider or location selection

on corporate image is an important criterion in

1 For the purposes of this study, offshoring includes both use of third-

party service providers and captive engagements to provide offshore delivery of IT and BP Services 2 The phrase ‘anti-offshoring pressures’ is used here broadly to denote

expectations or demands from constituents that organizations should reduce or eliminate offshoring. That is, the pressures are against "the sending of domestic jobs overseas". The constituents include, but are not limited to, the general public and public opinion, governments, regulatory structures, legislative attempts and laws, professions, unions and interest groups, among others.

making supplier/location choices for a large portion

of responding organizations

Contractual and Relational Governance: More

respondents agreed that anti-offshoring pressures

have had little impact on how contracts are

structured and relationships are managed.

However, we saw some indication of buyer

organizations’ existing or planned use of contractual

buffers to protect against potentially severe anti-

offshoring regulation

Also, some indication that organizations have increased scrutiny of service provider use of work visas and workers deployed onsite

Regulatory Environment Uncertainty: Overall,

respondents expressed greatest uncertainty about:

Changes in laws or policies in relation to hiring of

foreign workers (e.g. H1-b visa policies in the U.S.)

Changes in tax laws or policies related to offshoring

Organizational Satisfaction with Offshoring: On

average, respondents indicated fairly high success

with offshoring. Similar levels of high satisfaction

with both IT and BP offshoring.

Cost reduction and improved flexibility seem to be

the major benefits of offshoring

High offshore employee turnover and problems with

knowledge transfer appear as key issues

For the questions asked, distributions of responses,

information on demographics and nature of offshore

engagements, and other interesting insights, see the full

survey results.

About the authors:

Shaji Khan ([email protected]) is a Ph.D. Candidate

and Dr. Mary Lacity ([email protected]) is Professor

of Information

Systems at the

College of Business

Administration,

University of

Missouri-St. Louis.

ANTI-OFFSHORING PRESSURES AND

OFFSHORING OF INFORMATION

TECHNOLOGY AND BUSINESS PROCESSES

Shaji Khan, Ph.D. Candidate, Business Administration

with IS Emphasis, UMSL

Mary Lacity, Professor of Information Systems, UMSL

Survey Results

Background

Parallel to explosive growth in offshoring, there have been calls for a reduction in

offshoring by a variety of institutional stakeholders such as government and

regulatory bodies, the general public and public opinion, special interest groups,

labor unions, professions, customers…

Institutional opponents are attempting to curb offshoring through regulations, political

rhetoric, public demonstrations, etc.

… President Obama proposes the American Jobs Act

… Bill introduced in US Senate titled “Creating

American Jobs and Ending Offshoring Act”

(eventually blocked from becoming law)

“The United States Call Center Worker and Consumer

Protection Act would protect US jobs and consumers by

punishing companies that send our call center jobs abroad.”

Communication Workers of America. http://www.cwa-union.org/issues/entry/c/call_center_bill/

(Bill Introduced in the House on Dec 7 2011)


2

“It is time to stop rewarding businesses that ship jobs

overseas, and start rewarding companies that create

jobs right here in America” President Obama, State of

the Union Address (January 24, 2012)

“Ins

our

cing

Am

erica

n Jo

bs"

foru

m a

t th

e W

hite

Hous

e

01/11/2

01

2

New York Senator urges National Grid CEO to ditch plans for sending 200 IT jobs offshore http://www.informationweek.com/news/security/privacy/222300075

http://www.cwa-union.org/issues/entry/c/call_center_bill/



http://www.informationweek.com/news/security/privacy/222300075

Research Question: How are buyer organizations dealing

with and responding to anti-offshoring pressures?


3

Outline

Survey Background

Demographics

Nature of offshore engagements

Success with Offshoring

Organizational responses to anti-offshoring pressures

Overall extent of offshoring

Service Provider/Location Selection

Contractual and Relational Governance

Regulatory Environment Uncertainty with respect to Offshoring


4

Unit of analysis: Organization

Focus on buyers of offshored services

Here offshoring includes both use of third-party service providers and captive operations

Information Technology (IT) and Business Process (BP) Offshoring

Survey invitation sent to members representing organizations across industries and countries

Responses in relation to offshoring from organization’s headquarters country

Data collection period: September to November, 2011


5

Survey Background*

* - Our sincere thanks to Everest Group for facilitating this survey

Demographics (n=84; respondents from buyer organizations)

Industry

Category %

Aerospace and Defense 5.9

BFSI: Banking, Financial Services and Insurance 27.9

Consumer Packaged Goods 7.4

Electronics & Hi-Tech 8.8

Energy & Utilities 4.4

Healthcare 10.3

Manufacturing & Industrials 10.3

Media & Entertainment 2.9

Professional services/Investment 5.9

Retail 2.9

Telecom 4.4

Others 7.1

Total 100%

Australia 1

Canada 3

France 4

Germany 3

Hong Kong 1

Netherlands 2

Switzerland 2

United Kingdom

8 United States

60

Organization Headquarters (Number of respondents)

Majority of responding organizations

headquartered in U.S.

Eight other countries represented

BFSI was most represented with 27.9%

Healthcare and Manufacturing with approx.

10% each


6

Demographics (contd.)

20%

22%

20%

13%

24%

0 - 4,999

5,000 - 19,999

20,000 - 49,999

50,000 - 100,000

> 100,000

Organization Headcount (Percentage of respondents)

< $250M 6%

$250M - 1B 5%

$1B - 5B 23%

$5B - 10B 17% $10B - 20B

10%

$20B - 30B 9%

$30B - 40B 5%

> $40B 25%

Organization Revenues (Percentage of respondents)


7

Nature of offshore engagements


8

Offshore Models by Number of Employees (Percentage of respondents)

Info

rma

tion T

ech

nolo

gy

Busi

ness

Pro

cess

es

22%

20%

22%

13%

56%

67%

0% 20% 40% 60% 80% 100%

Business Processes

Information Technology

Dominant Offshore Models Used (Percentage of respondents)

13%

18%

27%

18%

15%

87%

64%

58%

0% 20% 40% 60% 80% 100%

< 5,000 Employees

5,000 - 50,000 Employees

> 50,000 Employees

20%

30%

15%

20%

13%

35%

60%

57%

50%

0% 20% 40% 60% 80% 100%

< 5,000 Employees

5,000 - 50,000 Employees

> 50,000 Employees Predominantly Captive

Similar Mix Across Captive/Third-party

Predominantly Third-party Providers

(see next for summary)


9

Nature of offshore engagements (contd.)

About one-third of respondent

organizations had fewer than 500 FTE

deployed in offshore locations

43% had 2000 or more FTE deployed in

offshore locations

34%

12%

12%

16%

8%

3%

4%

12%

< 500 FTE

500 - 999 FTE

1,000 - 1,999 FTE

2,000 - 3,999 FTE

4,000 - 5,999 FTE

6,000 - 7,999 FTE

8,000 - 9,999 FTE

> 9,999 FTE

Offshore Headcount (Percentage of respondents)

Offshore Models Summary

More respondents indicated use of third-party providers as their dominant offshore model for both IT and BP services

BP Services seem to have a relatively heavier captive component in this sample

Increasing use of captive arrangements and decreasing use of third-party providers with greater organizational size is fairly evident for IT Offshoring

However, within BP offshoring smaller organizations (fewer employees) showed greater percentages for captive arrangements than larger organizations

Assessing organizational satisfaction

with offshoring

We asked: Please indicate the extent to which overall

offshoring (across locations, models, and functions) has been beneficial/detrimental to your organization. (7 point response format)

Strongly

Disagree

Disagree Somewhat

Disagree

Neither

Disagree nor

Agree

Somewhat

Agree

Agree Strongly

Agree


10

30%

51%

39%

66%

7%

6%

8%

5%

%

%


with offshoring: Results

1

0

3

3

4

8

3

4

0

14

8

19

3

13

9

23

26

27

27

21

45

27

33

26

21

12

18

4

0 10 20 30 40 50

Strongly Disagree

Disagree

Somewhat Disagree

Neither Disagree nor Agree Somewhat Agree

Agree

Strongly Agree

offshoring has helped us achieve

increased speed to market or speed of

delivery

offshoring has improved our overall

flexibility

offshoring has helped us gain increased

access to skilled personnel

offshoring has helped us reduce costs

Overall… %

Benefi

ts w

ith

off

shori

ng


11

30%

9%

40%

28%

14%

49%

12%

21%

%

%


with offshoring: Results (contd.)

we have experienced problems with

knowledge transfer

we have experienced issues related to

poor data security / privacy

we have experienced high offshore

employee turnover

we have experienced poor service quality

With offshoring … 3

0

10

1

18

12

39

13

14

6

10

8

6

13

13

14

30

29

19

35

19

30

6

17

9

10

3

13

0 10 20 30 40 50

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

%

Dra

wb

ack

s w

ith

off

shori

ng


12

4%

50%

48%

%

% 1%


with offshoring: Results (contd.)

with our overall benefits from

Information Technology (IT) offshoring

with our overall benefits from

Business Process (BP) offshoring

Resp

ond

ent

s gene

rally

agre

ed tha

t

We are satisfied … %

0

2

1

2

10

9

14

16

27

23

38

32

10

18

0 10 20 30 40 50

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

Note: We did not find any statistically significant differences for the offshoring

success related items based on:

• US versus Non-US firms

• Dominant Offshoring Models (i.e. predominantly captive, third-party, or mixed)

• Exclusive use of Offshore Majors versus others

• Organizational Size Copyright © 2012 Khan and Lacity

13


with offshoring: Summary

Benefits

Cost reduction and improved

flexibility emerge strong

Increased speed to

market/delivery and improved

access to skilled personnel were

not as strong

Greater variation in responses

related to “improved access to

skilled personnel”

Drawbacks

High offshore employee turnover

and problems with knowledge

transfer appear as key issues

Poor data security / privacy

concerns do not appear to be a

major issue

Greater variation in responses

related to poor service quality

On average, respondents indicated fairly high success with offshoring

Similar levels of satisfaction with both IT and BP offshoring


14

Assessing organizational response to

calls for reduction in offshoring:

We asked: Please indicate how your organization is dealing

with anti-offshoring pressures from various constituents across

the different aspects presented below. Constituents include

government and regulatory bodies, the general public and

public opinion, special interest groups, labor unions,

professions, customers, or others. (7 point response format)

Strongly

Disagree

Disagree Somewhat

Disagree

Neither

Disagree nor

Agree

Somewhat

Agree

Agree Strongly

Agree


15


calls for reduction in offshoring: Results

8%

12%

10%

8%

%

%

57%

55%

61%

58%

16

13

14

8

39

45

43

53

13

8

10

16

17

15

12

13

8

7

10

2

6

10

3

8

2

2

7

0 10 20 30 40 50 60

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

%

organization has reduced or plans to

reduce the overall extent of offshore

delivery

organization is scaling back or putting on

hold originally planned growth in offshore

delivery of IT Services

organization is scaling back or putting on

hold originally planned growth in offshore

delivery of BP Services

organization has decided to avoid signing

longer-term offshore delivery contracts, at

least within the next 12 Months

Ma

jori

ty d

isa

gre

ed

tha

t

In response to anti-offshoring pressures…


16

0

11%

54%

53%

%

% 11%

Assessing organizational response to calls

for reduction in offshoring: Results (contd.)

…the scale of our organization’s use of

offshore services

…the scope of our organization’s use of

offshore services

And

ma

jori

ty a

gre

ed

tha

t

Anti-offshoring pressures have had no impact on …

2

3

9

8

8

9

8

9

21

17

35

36

18

18

0 10 20 30 40

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

%


17


calls for reduction in offshoring: Summary

On average, respondents indicated no existing or planned decrease in overall extent of offshoring due to the broader anti-offshoring environment

However, there is variation in responses suggesting that some organizations are more responsive than others

Responses were similar for both IT and BP services

On average, no indication of organizations avoiding longer term offshore contracts due to anti-offshoring environment

On average, respondents displayed greater agreement that anti-offshoring pressures have had no impact on the scale or scope of their offshoring


18

%

%

27%

16%

39%

16%

20%

30%

13%

44%

Anti-offshoring pressures and Service

Provider/Location Selection: Results

increased preference for only those

offshore majors that have sizeable

presence in buyers' home country

increased preference for global majors

that can provide flexibility to move

offshore work back to home country

our supplier selection criteria include

assessment of any potential impact of

supplier choice on our corporate image

our location selection criteria include

assessment of any potential impact of

location choice on our corporate image

11

8

5

8

33

22

11

8

6

5

8

15

23

27

16

15

14

19

21

27

13

17

25

16

0

3

14

11

0 10 20 30 40

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

%


19

More

agre

ed tha

t “Im

pact

on C

orp

ora

te Im

age”

am

ong s

ele

ctio

n c

rite

ria

8%

41%

40%

%

% 11%

Anti-offshoring pressures and Service

Provider/Location Selection: Results (contd.)

… how we select service providers

…how we select locations

Whi

le m

ore

gene

rally

ag

reed tha

t

Anti-offshoring pressures have had no impact on … %

0

3

11

5

12

15

17

17

21

20

26

29

14

12

0 10 20 30 40

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree

Variation in responses noticeable


20

On average, no apparent preference for only those offshore majors that have sizeable presence in buyers' home country

On average, respondents indicated some preference for global majors who can provide flexibility to move offshore work back to organization’s home country

Assessing impact of Supplier and Location Selection on Corporate Image seems important for organizations

Both supplier and location selection criteria seem to include an assessment of impact on organizational image as a result of such choices

Within this, greater emphasis on supplier selection than on location selection

Anti-offshoring pressures and Service Provider/Location Selection: Summary


21

%

%

41%

14%

45%

12%

25%

26%

27%

28%

Anti-offshoring pressures and Contractual /

Relational Governance: Results

our offshoring contracts include or will

include buffers to protect against potentially

severe anti-offshoring regulation

our organization has increased scrutiny of

our service provider(s) use of work visas

and workers deployed onsite

anti-offshoring pressures have had no

impact on how our IT and BP services

contracts are structured

anti-offshoring pressures have had no

impact on how we manage relationships

with service providers

%

2

5

2

0

26

21

10

14

8

9

11

11

21

19

13

16

16

21

19

17

21

21

35

30

6

4

10

11

0 10 20 30 40

Strongly Disagree

Disagree

Somewhat Disagree


Agree

Strongly Agree


22

While more respondents agreed that anti-offshoring pressures have had little impact on how contracts are structured and relationships with service providers are managed, we saw: Clearly some indication of organizations’ existing or

planned use of contractual buffers to protect against potentially severe anti-offshoring regulation

Also, clear indication that organizations have increased scrutiny of service provider use of work visas and workers deployed onsite

Overall, strongest impact of anti-offshoring pressures visible in relation to these aspects

Anti-offshoring pressures and Contractual / Relational Governance: Summary


23

Assessing perceived regulatory

environment uncertainty for offshoring

We asked: Please rate the following regulatory actions

of Federal and State Governments (home country

governments) on the degree of their predictability.

Focus on predictability as an indicator of uncertainty

Highly

Predictable

Highly

Unpredictable


24

Assessing perceived regulatory environment

uncertainty for offshoring: Results

Changes in tax laws or policies with respect to

offshoring are:

Changes in Data Privacy/Security laws or policies that

may impact offshoring are:

Changes in Intellectual Property Protection laws or

policies that may impact offshoring are

Changes in laws or policies that restrict offshore

fulfillment of Government contracts are

Mean 4.66

Mean 4.28

Mean 4.08

Mean 4.30

Mean 4.80

1 2 3 4 5 6 7

Changes in laws or policies pertaining to hiring of

foreign workers (e.g. H1-b visa policies in the U.S.) are

Highly

Unpredictable

Highly

Predictable

UNCERTAINTY Ove

rall,

mod

era

te to h

igh

unce

rtain

ty

NOTE: ENDS OF “ERROR BARS” (black lines) INDICATE 1 STANDARD DEVIATION ABOVE & BELOW MEAN


25

Assessing perceived regulatory environment

uncertainty for offshoring: Summary

Overall, results indicate respondents perceived

moderate to high uncertainty with respect to State

and Federal governments’ regulatory actions in

relation to offshoring

Greatest uncertainty observed for:

Changes in laws or policies in relation to hiring of

foreign workers (e.g. H1-b visa policies in the U.S.)

Changes in tax laws or policies


26

Limitations of this Study

Could not draw on a random sample in the traditional sense

Although the respondents represent a wide range of industries, organizational sizes, countries etc.

Took a cross-sectional view (i.e. not over time)

Self-report questionnaire

As there is no archival data on extent of offshoring

58% of respondents provided their contact information lending further credence to the validity of results

Could not incorporate possible “Pro-offshoring” pressures


27

Thank you!

Acknowledgements:

We sincerely thank all study participants for their valuable time and insights

We also thank Eric Simonson, Managing Partner, Research at Everest Group and his team for helping us conduct this survey

Contact Information:

Shaji Khan: [email protected]

Dr. Mary Lacity: [email protected]


28

mailto:[email protected]

mailto:[email protected]