Saturday, June 04, 2005

Lifecycle of offshore outsourcing

Offshore outsourcing, especially in software application development and maintenance and manufacturing is nothing new. Companies have been outsourcing offsite or offshore for at least two decades. What is new is the rapid growth in business process offshore outsourcing in areas such as customer care, transaction processing, finance and accounting, human resources, desktop support, and software development.
Companies in the U.S. economy have resorted to a strategy of widespread cost-cutting as a way to make their earnings look more attractive. However, like all over hyped management innovations, offshore outsourcing is bound to reach a short-term peak, especially in information technology.
Typically, every management-driven innovation goes through three phases: hype, despair, consolidation, and assimilation
The Hype Period. Offshore outsourcing is currently in a period of hype, many companies initiate projects to gain experience with the current innovation. They also are often spurred into action simply because a competitor in the industry is doing it. A similar trend was noticed in 190’s.
The period of despair. Usually the hype ends abruptly, and the market enters a period of disillusionment. In this phase, the offshore projects that were initiated in haste will fail to deliver on their promises. We are beginning to see some evidence of a pullback with recent decisions by Dell and Lehman Brothers to pull their offshore help desks back in-house. The companies that aren't serious about offshore outsourcing at this point will begin to retreat and either reevaluate their strategies or cancel their offshore plans altogether.
Consolidation and assimilation period. Following the period of despair is a period of consolidation, during which the weaker vendors and weaker companies exit the market. We saw similar behavior in the e-commerce market: The market went through a period of consolidation and, in the last year or so, finally appears to be on the Slope of Profit.
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