Reversing years of offshore outsourcing, some chief information officers are moving technology functions back in-house, or to cloud providers. Cost factors and corporate shifts toward cloud software, which is hosted and maintained by a vendor, are helping drive the on-shoring push. But CIOs looking to contain operations within contiguous time zones also cite other reasons, from wanting to avoid the agony of off-hour teleconference calls to avoiding miscommunication owing to language differences.
Manish Kapoor, CIO of NuStar Energy L.P., says that he brought back the company’s customer service desk function from overseas a few years ago, “and we are loving it.” Now customer service is managed onsite by a third-party provider. He also says he abandoned a couple of offshore development projects because of language complications between his U.S. staff and the outsourcers, whose location he declined to mention. Coordination across geographic regions was prohibitive, he added.
Cost can also be a major factor for the move away from outsourcers, the Wall Street Journal reported Monday. AstraZeneca PLC expects to cut in half the $750 million the drug maker used to spend annually on Indian outsourcing over the next two years, as the company shifts toward cloud software. AstraZeneca CIO David Smoley told CIO Journal he’s hired more software engineers to build custom software, and implemented cloud software for collaboration, service desk, human resources, among other services.
While the motivating factors may vary, taken together these decisions to cut outsourcing ties is having an effect on the industry. KPMG LLC said the value of outsourcing deals signed in 2014 shrank 17% to $120.4 billion, from $145.5 billion a year earlier.
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To be sure, a globalized workforce will always have certain advantages. IDEXX Laboratories Inc. largely shifted to cloud services from Amazon Web Services, Microsoft Corp., Salesforce.com Inc. and Google Inc., but the life sciences company still outsources some software to offshore developers. “What we’re finding is that the common cloud architectures… definitely makes it easier for us to go wherever the talent is – offshore, onshore – it’s a global team for a global company,” CIO Ken Grady said.
IDC analyst David Tapper says companies rejecting offshore outsourcing are outliers because if the majority of companies were reverting to in-house or cloud IT work, their costs would “go way up.” Offshore outsourcing to countries such as India and Russia is much cheaper than in the U.S., and Wall Street would savage companies whose earnings reflect sharply rising expenditures.
“I do think these are outliers… whether or not they are telltale signs of long-term shift I’m not sure,” Mr. Tapper said.