With the Trump effect and the promise of lower corporate tax rates (35 percent to 15 percent), we are likely to see a resurgence of moving jobs back onshore. However, not all of this will be done by people.
Overcapacity in outsourcing
Why would any organization these days outsource anything using offshore labor arbitrage? As many IT (ITO) and business process outsourcing (BPO) contracts come up for renewal, the question remains, how many rebids will be successful - 50 percent, 25 percent or 10 percent?
There is overcapacity in outsourcing as demonstrated by further mergers - HP acquiring CSC and CSC acquiring Xchanging - demonstrating that management has no strategy other than consolidation.
The smart move to Blockchain
Only Ginni Rometty at IBM has committed to pushing the company towards becoming a technology-enabled business, investing heavily in Blockchain and other technologies with the objective of creating a smarter planet and smarter cities. It is a very smart move and may ultimately protect shareholders.
Blockchain will accelerate the decline of offshore outsourcing providers given that the technology is fundamentally destructive, eliminating the non-value added administrative activities of the middlemen. It collapses entire industries removing the center, delivering new levels of efficiencies and cost savings through smart contract automation.
In a Blockchain operating model world of crypto-economics and artisan markets, there is no need to outsource anything - as new organizations are created inherently efficient, secure and fair.
Indian IT services are exposed
The Indian IT services industry remains exposed given new technologies such as robotic process automation (Blue Prism and UIpath), which are already eroding margins and replacing the need for cheap labor. The software that never sleeps or requires a day off can be deployed for $2,000 per equivalent full-time employee. The numbers are compelling.
The outsourcing business model was designed for a different era consisting of large rigid organizational structures, that offer predictable ways of measuring performance in an SLA (service level agreement) where scale can be harnessed into cheap labor factories. The only problem is that the same inefficient business processes were done cheaper and with no possibility of improving the business processes, as by doing so would result in provider margins falling.
The final nail in the coffin
We live in a world where customers decide the outcomes and performance of our businesses; customers that are open, random and supportive (ORS) in their behaviors and unpredictable, less loyal and want flexibility and choice.
With HMRC scraping the Aspire contract, preferring to work with small specialist artisan service providers that use agile and lean principles of getting things re-designed and built, and with cloud computing offering the possibility to migrate from legacy, is Blockchain the final nail in the coffin of IT and business process outsourcing?
Blockchain eliminates the non-value added administrative processes as well as 90 percent of back office functions. Tell me again what is it that IT Service providers are not getting…