Anti-Offshoring Pressures and Offshoring of IT and Business Processes Survey Results

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University of Missouri-St. Louis, College of Business Administration, conducted a survey with the support of Everest Group to understand how different organizations are responding economic and …

University of Missouri-St. Louis, College of Business Administration, conducted a survey with the support of Everest Group to understand how different organizations are responding economic and political pressures on offshoring.

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  • 1. SURVEY ON: ANTI-OFFSHORING PRESSURES AND OFFSHORINGEXECUTIVE OF INFORMATION TECHNOLOGY AND BUSINESS PROCESSESSUMMARY by Shaji khan and Dr. Mary LacityParallel to explosive growth in offshoring1 of Information making supplier/location choices for a large portionTechnology (IT) and Business Processes (BP), we have of responding organizationsalso witnessed a growing backlash against offshoring andresulting pressures on organizations to curb their Contractual and Relational Governance: Moreoffshore engagements. Yet, it is unclear how respondents agreed that anti-offshoring pressuresorganizations are dealing with and responding to such have had little impact on how contracts areanti-offshoring pressures2? To gain a better structured and relationships are managed.understanding of organizational responses to anti-  However, we saw some indication of buyeroffshoring pressures, we conducted a survey of buyer organizations’ existing or planned use of contractualorganizations with the help of Everest Group during buffers to protect against potentially severe anti-September – November, 2011. The survey revealed some offshoring regulationinteresting insights. Key findings are summarized below.  Also, some indication that organizations have increased scrutiny of service provider use of workOverall Extent of Offshoring: On average, there visas and workers deployed onsiteseems to be no indication of an overwhelming driftaway from offshoring as a result of anti-offshoring Regulatory Environment Uncertainty: Overall,pressures. respondents expressed greatest uncertainty about: A majority of respondents disagreed that their  Changes in laws or policies in relation to hiring of organization is scaling back or putting on hold foreign workers (e.g. H1-b visa policies in the U.S.) originally planned growth in offshore delivery of IT  Changes in tax laws or policies related to offshoring and BP services A majority also disagreed that their organization is Organizational Satisfaction with Offshoring: On planning to avoid (at least within the next 12 average, respondents indicated fairly high success months) longer term offshore contracts as a result of with offshoring. Similar levels of high satisfaction anti-offshoring pressures with both IT and BP offshoring.Service Provider/Location Selection: On average,  Cost reduction and improved flexibility seem to bewe did not find any apparent preference for only the major benefits of offshoring  High offshore employee turnover and problems withthose offshore majors that have sizeable presence knowledge transfer appear as key issuesin buyers home country. Respondents did indicate some preference for global For the questions asked, distributions of responses, majors who can provide flexibility to move offshore information on demographics and nature of offshore work back to organization’s home country in case of engagements, and other interesting insights, see the full severe anti-offshoring regulation survey results. The impact of service provider or location selection on corporate image is an important criterion in About the authors: Shaji Khan (shajikhan@umsl.edu) is a Ph.D. Candidate1 For the purposes of this study, offshoring includes both use of third- and Dr. Mary Lacity (mary.lacity@umsl.edu) is Professorparty service providers and captive engagements to provide offshore of Informationdelivery of IT and BP Services2 The phrase ‘anti-offshoring pressures’ is used here broadly to denote Systems at theexpectations or demands from constituents that organizations should College of Businessreduce or eliminate offshoring. That is, the pressures are against "thesending of domestic jobs overseas". The constituents include, but are Administration,not limited to, the general public and public opinion, governments, University ofregulatory structures, legislative attempts and laws, professions, unionsand interest groups, among others. Missouri-St. Louis.Acknowledgements: We are grateful to the 84 respondents for participation and Everest Group for facilitating this survey. Copyright © 2012 Khan and Lacity
  • 2. ANTI-OFFSHORING PRESSURES AND OFFSHORING OF INFORMATIONTECHNOLOGY AND BUSINESS PROCESSES Survey Results Shaji Khan, Ph.D. Candidate, Business Administration with IS Emphasis, UMSL Mary Lacity, Professor of Information Systems, UMSL
  • 3. Background 2 Parallel to explosive growth in offshoring, there have been calls for a reduction in offshoring by a variety of institutional stakeholders such as government and regulatory bodies, the general public and public opinion, special interest groups, labor unions, professions, customers… Institutional opponents are attempting to curb offshoring through regulations, political rhetoric, public demonstrations, etc.… President Obama proposes the American Jobs Act “It is time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create… Bill introduced in US Senate titled “Creating jobs right here in America” President Obama, State ofAmerican Jobs and Ending Offshoring Act” the Union Address (January 24, 2012)(eventually blocked from becoming law) “Insourcing American Jobs" forum at the White House “The United States Call Center Worker and Consumer Protection Act would protect US jobs and consumers by punishing companies that send our call center jobs abroad.” 01/11/2012 Communication Workers of America. http://www.cwa-union.org/issues/entry/c/call_center_bill/ (Bill Introduced in the House on Dec 7 2011)New York Senator urges National Grid CEO to ditch plans for sending 200 IT jobs offshorehttp://www.informationweek.com/news/security/privacy/222300075 Copyright © 2012 Khan and Lacity
  • 4. Research Question: How are buyer organizations dealing3 with and responding to anti-offshoring pressures? Copyright © 2012 Khan and Lacity
  • 5. Outline4  Survey Background  Demographics  Nature of offshore engagements  Success with Offshoring  Organizational responses to anti-offshoring pressures  Overall extent of offshoring  Service Provider/Location Selection  Contractual and Relational Governance  Regulatory Environment Uncertainty with respect to Offshoring Copyright © 2012 Khan and Lacity
  • 6. Survey Background*5  Unit of analysis: Organization  Focus on buyers of offshored services  Here offshoring includes both use of third-party service providers and captive operations  Information Technology (IT) and Business Process (BP) Offshoring  Survey invitation sent to members representing organizations across industries and countries  Responses in relation to offshoring from organization’s headquarters country  Data collection period: September to November, 2011* - Our sincere thanks to Everest Group for facilitating this survey Copyright © 2012 Khan and Lacity
  • 7. Demographics (n=84; respondents from buyer organizations)6 Industry Organization Headquarters Category % (Number of respondents) Canada Aerospace and Defense 5.9 Australia France Hong Kong 3 BFSI: Banking, Financial Services and Insurance 27.9 1 4 1 Germany Consumer Packaged Goods 7.4 3 Netherlands Electronics & Hi-Tech 8.8 2 Energy & Utilities 4.4 Switzerland 2 Healthcare 10.3 Manufacturing & Industrials 10.3 Media & Entertainment 2.9 United Kingdom Professional services/Investment 5.9 United 8 Retail 2.9 States Telecom 4.4 60 Others 7.1 Total 100% Majority of responding organizations BFSI was most represented with 27.9%headquartered in U.S. Healthcare and Manufacturing with approx. Eight other countries represented 10% each Copyright © 2012 Khan and Lacity
  • 8. Demographics (contd.)7 Organization Headcount Organization Revenues (Percentage of respondents) (Percentage of respondents) < $250M 0 - 4,999 6% > 100,000 $250M - 1B > $40B 5% 24% 20% 25% $1B - 5B 5,000 - 19,999 23% 50,000 - 100,000 13% $30B - 40B 22% 5% $20B - 30B 20% 9% $5B - 10B $10B - 20B 17% 20,000 - 49,999 10% Copyright © 2012 Khan and Lacity
  • 9. Nature of offshore engagements 8Dominant Offshore Models Used Offshore Models by Number of Employees(Percentage of respondents) (Percentage of respondents) Information TechnologyInformation 20% 13% 67% > 50,000 Employees 27% 15% 58%Technology Business 5,000 - 50,000 Employees 18% 18% 64% 22% 22% 56% Processes 0% 20% 40% 60% 80% 100% < 5,000 Employees 13% 87% 0% 20% 40% 60% 80% 100% Predominantly Captive Business Processes > 50,000 Employees 15% 35% 50% Similar Mix Across Captive/Third-party Predominantly Third-party Providers 5,000 - 50,000 Employees 30% 13% 57% < 5,000 Employees 20% 20% 60% (see next for summary) 0% 20% 40% 60% 80% 100% Copyright © 2012 Khan and Lacity
  • 10. Nature of offshore engagements (contd.) 9Offshore Models Summary Offshore Headcount (Percentage of respondents) More respondents indicated use of third-party providers as their > 9,999 FTE 12% dominant offshore model for both IT 8,000 - 9,999 FTE 4% and BP services 6,000 - 7,999 FTE 3% BP Services seem to have a relatively heavier captive component 4,000 - 5,999 FTE 8% in this sample 2,000 - 3,999 FTE 16% Increasing use of captive 1,000 - 1,999 FTE 12% arrangements and decreasing use of third-party providers with greater 500 - 999 FTE 12% organizational size is fairly evident < 500 FTE 34% for IT Offshoring However, within BP offshoring  About one-third of respondent smaller organizations (fewer organizations had fewer than 500 FTE employees) showed greater deployed in offshore locations percentages for captive arrangements than larger  43% had 2000 or more FTE deployed in organizations offshore locations Copyright © 2012 Khan and Lacity
  • 11. Assessing organizational satisfaction10 with offshoring  We asked: Please indicate the extent to which overall offshoring (across locations, models, and functions) has been beneficial/detrimental to your organization. (7 point response format) Strongly Disagree Somewhat Neither Somewhat Agree Strongly Disagree Disagree Disagree nor Agree Agree Agree Copyright © 2012 Khan and Lacity
  • 12. Assessing organizational satisfaction11 with offshoring: Results 0 10 20 30 40 50 %Overall… 1 5% 4 0 offshoring has helped us reduce costs 3 26 45 66% Benefits with offshoring 21 0 8% 8 Strongly Disagree offshoring has helped us gain increased 14 % Disagree 13 access to skilled personnel 27 27 Somewhat Disagree 39% 12 Neither Disagree nor Agree 3 Somewhat Agree 6% 3 offshoring has improved our overall 8 Agree flexibility 9 % 27 Strongly Agree 33 51% 18 3 7% offshoring has helped us achieve 4 19 increased speed to market or speed of 23 21 delivery 26 30% 4 Copyright © 2012 Khan and Lacity
  • 13. Assessing organizational satisfaction 12 with offshoring: Results (contd.) 0 10 20 30 40 50 %With offshoring … 3 21% 18 14 we have experienced poor service quality 6 30 Drawbacks with offshoring 19 28% 9 0 12% 12 Strongly Disagree we have experienced high offshore 6 % Disagree 13 employee turnover 29 Somewhat Disagree 30 40% 10 Neither Disagree nor Agree 10 Somewhat Agree 49% 39 we have experienced issues related to 10 % Agree 13 poor data security / privacy 19 Strongly Agree 6 9% 3 1 14% 13 we have experienced problems with 8 14 knowledge transfer 35 17 30% 13 Copyright © 2012 Khan and Lacity
  • 14. Assessing organizational satisfaction 13 with offshoring: Results (contd.)We are satisfied … 0 10 20 30 40 50% Respondents generally agreed that 1% 0 1 Strongly Disagree % with our overall benefits from 10 Disagree 14 Information Technology (IT) offshoring 27 Somewhat Disagree 38 48% 10 Neither Disagree nor Agree 2 Somewhat Agree 4% 2 with our overall benefits from 9 16 % Agree Business Process (BP) offshoring 23 32 Strongly Agree 50% 18 Note: We did not find any statistically significant differences for the offshoring success related items based on: • US versus Non-US firms • Dominant Offshoring Models (i.e. predominantly captive, third-party, or mixed) • Exclusive use of Offshore Majors versus others • Organizational Size Copyright © 2012 Khan and Lacity
  • 15. Assessing organizational satisfaction14 with offshoring: Summary  On average, respondents indicated fairly high success with offshoring  Similar levels of satisfaction with both IT and BP offshoring  Benefits  Drawbacks  Cost reduction and improved  High offshore employee turnover flexibility emerge strong and problems with knowledge  Increased speed to transfer appear as key issues market/delivery and improved  Poor data security / privacy access to skilled personnel were concerns do not appear to be a not as strong major issue  Greater variation in responses  Greater variation in responses related to “improved access to related to poor service quality skilled personnel” Copyright © 2012 Khan and Lacity
  • 16. Assessing organizational response to15 calls for reduction in offshoring:  We asked: Please indicate how your organization is dealing with anti-offshoring pressures from various constituents across the different aspects presented below. Constituents include government and regulatory bodies, the general public and public opinion, special interest groups, labor unions, professions, customers, or others. (7 point response format) Strongly Disagree Somewhat Neither Somewhat Agree Strongly Disagree Disagree Disagree nor Agree Agree Agree Copyright © 2012 Khan and Lacity
  • 17. Assessing organizational response to 16 calls for reduction in offshoring: Results 0 10 20 30 40 50 60 %In response to anti-offshoring pressures… 16 55% 39 organization has reduced or plans to 13 17 reduce the overall extent of offshore 8 delivery 8% 6 Majority disagreed that 2 Strongly Disagree 13 % 58% Disagree organization is scaling back or putting on 45 8 hold originally planned growth in offshore 15 Somewhat Disagree 7 delivery of IT Services 10 Neither Disagree nor 12% 2 Agree Somewhat Agree 14 Agree 57% organization is scaling back or putting on 43 % 10 Strongly Agree hold originally planned growth in offshore 12 10 delivery of BP Services 3 10% 7 organization has decided to avoid signing 61% 8 53 longer-term offshore delivery contracts, at 16 13 least within the next 12 Months 2 8 8% 0 Copyright © 2012 Khan and Lacity
  • 18. Assessing organizational response to calls 17 for reduction in offshoring: Results (contd.)Anti-offshoring pressures have had no impact on … 0 10 20 30 40 % 2 And majority agreed that 11% 9 Strongly Disagree % …the scale of our organization’s use of 8 Disagree 8 offshore services 21 Somewhat Disagree 35 53% 18 Neither Disagree nor Agree Somewhat Agree 3 11% 8 Agree …the scope of our organization’s use of 9 % 9 offshore services 17 Strongly Agree 36 54% 18 Copyright © 2012 Khan and Lacity
  • 19. Assessing organizational response to18 calls for reduction in offshoring: Summary  On average, respondents indicated no existing or planned decrease in overall extent of offshoring due to the broader anti-offshoring environment  However, there is variation in responses suggesting that some organizations are more responsive than others  Responses were similar for both IT and BP services  On average, no indication of organizations avoiding longer term offshore contracts due to anti-offshoring environment  On average, respondents displayed greater agreement that anti-offshoring pressures have had no impact on the scale or scope of their offshoring Copyright © 2012 Khan and Lacity
  • 20. Anti-offshoring pressures and Service 19 Provider/Location Selection: Results 0 10 20 30 40% 11 44% 33 increased preference for only those 6 offshore majors that have sizeable 14 23 presence in buyers home country 13% 0 13 8 30% increased preference for global majors 22 Strongly Disagree 5 % that can provide flexibility to move 27 Disagree 19 offshore work back to home country 17 Somewhat Disagree 20% 3 Neither Disagree nor AgreeMore agreed that “Impact 5 Somewhat Agree 16%among selection criteria our supplier selection criteria include 11 on Corporate Image” 8 Agree assessment of any potential impact of 16 % 21 Strongly Agree supplier choice on our corporate image 25 39% 14 our location selection criteria include 16% 8 8 assessment of any potential impact of 15 15 location choice on our corporate image 27 16 27% 11 Copyright © 2012 Khan and Lacity
  • 21. Anti-offshoring pressures and Service Provider/Location Selection: Results (contd.) 20Anti-offshoring pressures have had no impact on … 0 10 20 30 40 % While more generally agreed that 11% 0 11 Strongly Disagree % … how we select service providers 12 Disagree 17 21 26 Somewhat Disagree 40% 14 Neither Disagree nor Agree 3 Somewhat Agree 8% 5 …how we select locations 15 17 % Agree 20 Strongly Agree 29 41% 12 Variation in responses noticeable Copyright © 2012 Khan and Lacity
  • 22. Anti-offshoring pressures and Service Provider/Location Selection: Summary21  On average, no apparent preference for only those offshore majors that have sizeable presence in buyers home country  On average, respondents indicated some preference for global majors who can provide flexibility to move offshore work back to organization’s home country  Assessing impact of Supplier and Location Selection on Corporate Image seems important for organizations  Both supplier and location selection criteria seem to include an assessment of impact on organizational image as a result of such choices  Within this, greater emphasis on supplier selection than on location selection Copyright © 2012 Khan and Lacity
  • 23. Anti-offshoring pressures and Contractual / Relational Governance: Results22 0 10 20 30 40 % 2 28% 26 our offshoring contracts include or will 8 include buffers to protect against potentially 16 21 severe anti-offshoring regulation 27% 21 6 Strongly Disagree 5 % 26% our organization has increased scrutiny of 21 Disagree 9 our service provider(s) use of work visas 19 Somewhat Disagree 21 and workers deployed onsite 21 Neither Disagree nor 25% 4 Agree Somewhat Agree 2 Agree 12% anti-offshoring pressures have had no 10 % 11 Strongly Agree impact on how our IT and BP services 13 19 contracts are structured 35 45% 10 anti-offshoring pressures have had no 14% 0 14 impact on how we manage relationships 11 16 with service providers 17 30 41% 11 Copyright © 2012 Khan and Lacity
  • 24. Anti-offshoring pressures and Contractual / Relational Governance: Summary23  While more respondents agreed that anti- offshoring pressures have had little impact on how contracts are structured and relationships with service providers are managed, we saw:  Clearly some indication of organizations’ existing or planned use of contractual buffers to protect against potentially severe anti-offshoring regulation  Also, clear indication that organizations have increased scrutiny of service provider use of work visas and workers deployed onsite  Overall, strongest impact of anti-offshoring pressures visible in relation to these aspects Copyright © 2012 Khan and Lacity
  • 25. Assessing perceived regulatory24 environment uncertainty for offshoring  We asked: Please rate the following regulatory actions of Federal and State Governments (home country governments) on the degree of their predictability.  Focus on predictability as an indicator of uncertainty Highly Highly Predictable Unpredictable Copyright © 2012 Khan and Lacity
  • 26. Assessing perceived regulatory environment uncertainty for offshoring: Results 25 Highly Highly Predictable UnpredictableOverall, moderate to high uncertainty 1 2 3 4 5 6 7 Changes in tax laws or policies with respect to Mean 4.66 offshoring are: Changes in Data Privacy/Security laws or policies that may impact offshoring are: Mean 4.28 Changes in Intellectual Property Protection laws or policies that may impact offshoring are Mean 4.08 Changes in laws or policies that restrict offshore fulfillment of Government contracts are Mean 4.30 Changes in laws or policies pertaining to hiring of foreign workers (e.g. H1-b visa policies in the U.S.) are Mean 4.80 UNCERTAINTY NOTE: ENDS OF “ERROR BARS” (black lines) INDICATE 1 STANDARD DEVIATION ABOVE & BELOW MEAN Copyright © 2012 Khan and Lacity
  • 27. Assessing perceived regulatory environment uncertainty for offshoring: Summary26  Overall, results indicate respondents perceived moderate to high uncertainty with respect to State and Federal governments’ regulatory actions in relation to offshoring  Greatest uncertainty observed for:  Changes in laws or policies in relation to hiring of foreign workers (e.g. H1-b visa policies in the U.S.)  Changes in tax laws or policies Copyright © 2012 Khan and Lacity
  • 28. Limitations of this Study27  Could not draw on a random sample in the traditional sense  Although the respondents represent a wide range of industries, organizational sizes, countries etc.  Took a cross-sectional view (i.e. not over time)  Self-report questionnaire  As there is no archival data on extent of offshoring  58% of respondents provided their contact information lending further credence to the validity of results  Could not incorporate possible “Pro-offshoring” pressures Copyright © 2012 Khan and Lacity
  • 29. Thank you!28 Acknowledgements:  We sincerely thank all study participants for their valuable time and insights  We also thank Eric Simonson, Managing Partner, Research at Everest Group and his team for helping us conduct this survey Contact Information:  Shaji Khan: shajikhan@umsl.edu  Dr. Mary Lacity: mary.lacity@umsl.edu Copyright © 2012 Khan and Lacity