The impact of new digital business models on IT services

Suddenly, on-shoring is becoming more in vogue. Like many U.S. CIOs and their C-suite colleagues, you may be actively exploring how to duplicate or offset the loss of cost benefits from offshore/labor-arbitrage services. I have good news for you, along with a crucial tip.

Four primary factors are driving U.S. companies to make the move to onshore service delivery:

  • Uncertainty associated with the potential of changing tax laws and border taxes, which could introduce a tax of 20 to 30 percent on services done offshore.
  • Potential changing regulations and increasing regulatory pressures to relocate work from offshore resources to the U.S.
  • Potential of reputation damage of companies called out publicly in the news media for use of offshore workforces.
  • Uncertainty around rising costs due to changing immigration laws and use of H-1B visas, which could make offshoring more expensive for service providers and increase barriers.

Although these factors vary by industry and company, the net result is companies are looking even more closely at digital technologies and digital business models to offset the cost benefits of offshoring.

Let’s look at how these digital models apply to IT.

IT infrastructure

Many firms support their legacy infrastructure offshore and have significant teams in what is called Remote Infrastructure Management Outsourcing (RIMO) done offshore. A digital model applies to this in two ways:

  1. Cloud. It will accelerate the move to private and public cloud models. When you move to the cloud, you move into a highly automated environment, thus dramatically lowering the number of people to support the infrastructure. You can use that savings, and potentially the necessary support people can be more easily afforded onshore.
  2. Automation. By applying automation tools to the legacy IT infrastructure, you can dramatically reduce the number of people needed to support the legacy environment, once again making it more affordable to have the remaining people operate out of the U.S. instead of offshore. For example, you can eliminate 40 percent of the FTEs by using tools such as IPSoft’s Autonomics (featuring virtual engineers and toolset for all components of IT service management) or TCS’s Ignio (a cognitive system for enterprise IT operations). These digital models and technologies change the economics, making it much more affordable to do this work onshore rather than offshore.

DevOps Toolkit

Applying the DevOps set of tools (self-provisioning, automated testing, agile methodologies) in an IT shared services organization creates up to a 30 percent productivity benefit. A 30 percent increase in productivity goes a long way to offsetting some of the offshore/onshore cost issues.

In truth, these productivity gains can be captured using an offshore model. So the argument is a little more complicated because the opportunity to apply DevOps tools and techniques to shared services is independent of location. But if you adopt them, it will lessen the impact of moving work back onshore.

In a DevOps model, it’s necessary to move to cross-functional teams in pods aligned to the business that operate from app development through IT infrastructure. Designed to be highly productive teams, these IT employees naturally want to be close to the business users – therefore onshore. Using this model, we find companies enjoying substantial productivity gains well over 100 percent, which more than offset labor arbitrage/offshoring losses.

Source: cio.com – The impact of new digital business models on IT services

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