Offshoring – Taking its place within the Management Toolkit
One of the most intriguing findings from our recent Financial Services survey related to the impact of offshoring (and outsourcing*) on the financial job market – both in recent years as well as today. All in all, 70% of recruiters surveyed felt that offshoring has, indeed, impacted the job market in recent years and this was very consistent across both the US and the UK. However, these recruiters also indicated that the offshoring that has happened has been independent of the current financial crisis. 40% of all recruiters (and 60% of those in the US) felt that it would have no effect on the current market. (Only a small proportion – 11% – felt that off-shoring would contribute to future job cuts in the current crisis.)
While it is true that the current market situation is the result of a different set of problems, one would normally expect cautious employer markets (which is what we have today) to quickly adopt as many cost reduction tools as possible. And offshoring has been one of the more pronounced cost reduction tools available in recent years. However, this is not the case, according to the recruiters we interviewed, and is borne out by further discussions with our financial services clients. The underlying commentary has been that off-shoring has now ‘graduated’ to become “a strategic option available to businesses…independent of the current financial crisis.”
In other words, offshoring has taken its place within the strategy toolkit - from management fad to management fact. There are three key reasons why this has happened.
Teething. First, the initial infatuation (and subsequent ‘rush to market’) with the new offshoring idea is over. Several years ago, organizations rushed to offshore whatever they could – some successfully, other less so. But by doing so, organizations learnt many important lessons – that offshoring works; that you need to be thoughtful about what you send offshore; that you need to carefully manage who does it; and that it is about more than the absolute dollar cost. As a management group, we know better now, and the only way we could have figured it out in those early years, was by doing.
Value. As they worked through the teething, organizations also came to realize that offshoring was about more than cost reduction. There was actually a greater set of talents that could be accessed – higher value capabilities such as analytics, insightful research and more, that could deliver greater value at still compelling economics. But this talent still needed to be managed carefully and as a core competence – not as a sidebar to the existing business, but one where due attention is paid to people and process.
Furthermore, engaging in an offshore strategy has allowed managers to examine their processes as a whole and introduce longer term, transformative, changes. For example, if you look at today’s investment banking operations, in most cases it is not the 22 year-old junior analyst cranking out pitch books until they either (1) burn out, or (2) leave for another firm. Investment banks are grooming their top talent much more efficiently now that much of the junior-analyst work is done in offshore locations.
Professionalization. Coupling the lessons from the teething process and the recognition of higher value skillsets offshore, was the progressive development of strong provider markets in the space. The last few years has seen the emergence of a host of professional markets, such as the offshore research market in India, which is what we operate in. This allows client organizations to tap into these markets quickly and effectively to gain leverage and improve profitability. They still need to be thoughtful about what they do, but they aren’t marching through uncharted territory – there are a host of organizations that are ready to work with them in this pursuit.
Taken together, these three factors have driven the shift in thinking around offshoring. It’s a far cry from the nascent, politically tinged tactic of 2003. We have clearly graduated to a new age of offshoring, one that has taken its rightful place amongst the pantheon of management tools and techniques.
*While Offshoring and Outsourcing are distinct topics, they are related in many respects and, for the purposes of this article, will be treated somewhat interchangeably.