The ins and outs of outsourcing and offshoring

All signposts point to the continued expansion of outsourcing and its hand-in-glove partner, offshoring. Not only will outsourcing and offshoring continue to expand in the enterprise, they'll find their way into midsized and even small companies as well. Outsourcing, in all of its forms, will absorb more and more of the tactical operational IT services.

If we look back in order to understand what lies ahead, all signposts point to the continued expansion of outsourcing and its hand-in-glove partner, offshoring. Not only will outsourcing and offshoring continue to expand in the enterprise, they'll find their way into midsized and even small companies as well. Outsourcing, in all of its forms, will absorb more and more tactical operational IT services.

But that's not all: As IT and business align more closely, over the next several years outsourcing service providers will also be chosen for their ability to become strategic business partners.

With all the individual moves and debates over outsourcing and offshoring, it's easy to lose sight of the context. As the year draws to a close, I decided to bring together the best of Reality Check's coverage of outsourcing and offshoring. So here goes.

My Oct. 9 Reality Check, "Globalization takes on a new look," and my May 1 entry, "The truth about China," both explained the key shift now under way from a merely operational focus to a strategic one.

In the October entry, I said that the major Indian outsourcing companies were acquiring U.S.-based companies in order to "get deeper domain or industry expertise" — in other words, industry-specific business smarts.

On May 1, I pointed out that "the U.S. economy has survived at least three waves of globalization … we're now experiencing a fourth wave, with IT services and app development moving to India and China."

Application development and business process transformation, certainly two expanding strategic IT functions, will also continue to move offshore at an accelerated pace. (See "R &D sets sail for offshore," from my Sept. 11 Reality Check post.)

The fact is as outsourcers prove their worth, we will see U.S.-based companies look to outsource providers as a one-stop shop for product development that includes integrated IT operations, application infrastructure management, BPO, and applications development, rather than looking at outsourcers as discrete suppliers of services. (The April 18, 2006, Reality Check, "Is extreme outsourcing and consolidation worth it?" explores this trend further.)

Outsourcing and offshoring will grow in both depth and breadth over the next several years. To find out how, here are a few more links to outsourcing blog entries that show examples:
BPO battle heats up
The new outsourcing
Offshore attrition on the rise
Offshoring: Money talks, programmers walk
Outsourcing vs. shared services
Microsoft tech recruiter says hiring for Vancouver Development Center has worn her out
Tata's Mexico move tackles time zones