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

SURVEY ON: ANTI-OFFSHORING PRESSURES AND OFFSHORING
EXECUTIVE
OF INFORMATION TECHNOLOGY AND BUSINESS PROCESSES
SUMMARY
by Shaji khan and Dr. Mary Lacity

Parallel to explosive growth in offshoring1 of Information making supplier/location choices for a large portion
Technology (IT) and Business Processes (BP), we have of responding organizations
also witnessed a growing backlash against offshoring and
resulting pressures on organizations to curb their Contractual and Relational Governance: More
offshore engagements. Yet, it is unclear how respondents agreed that anti-offshoring pressures
organizations are dealing with and responding to such have had little impact on how contracts are
anti-offshoring pressures2? To gain a better
structured and relationships are managed.
understanding of organizational responses to anti-
 However, we saw some indication of buyer
offshoring pressures, we conducted a survey of buyer
organizations’ existing or planned use of contractual
organizations with the help of Everest Group during
buffers to protect against potentially severe anti-
September – November, 2011. The survey revealed some
offshoring regulation
interesting insights. Key findings are summarized below.
 Also, some indication that organizations have
increased scrutiny of service provider use of work
Overall Extent of Offshoring: On average, there
visas and workers deployed onsite
seems to be no indication of an overwhelming drift
away 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 be
we did not find any apparent preference for only the major benefits of offshoring
 High offshore employee turnover and problems with
those offshore majors that have sizeable presence
knowledge transfer appear as key issues
in 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. Candidate
1
For the purposes of this study, offshoring includes both use of third- and Dr. Mary Lacity (mary.lacity@umsl.edu) is Professor
party service providers and captive engagements to provide offshore
of Information
delivery of IT and BP Services
2
The phrase ‘anti-offshoring pressures’ is used here broadly to denote Systems at the
expectations or demands from constituents that organizations should College of Business
reduce or eliminate offshoring. That is, the pressures are against "the
sending of domestic jobs overseas". The constituents include, but are Administration,
not limited to, the general public and public opinion, governments, University of
regulatory structures, legislative attempts and laws, professions, unions
and 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

ANTI-OFFSHORING PRESSURES AND
OFFSHORING OF INFORMATION
TECHNOLOGY AND BUSINESS PROCESSES

Survey Results

Shaji Khan, Ph.D. Candidate, Business Administration
with IS Emphasis, UMSL

Mary Lacity, Professor of Information Systems, UMSL

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 of
American 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 offshore
http://www.informationweek.com/news/security/privacy/222300075

Research Question: How are buyer organizations dealing
3
with and responding to anti-offshoring pressures?


Outline
4

 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


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


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


Demographics (contd.)
7

Organization Headcount Organization Revenues
(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%


Nature of offshore engagements
8

Dominant Offshore Models Used Offshore Models by Number of Employees
(Percentage of respondents) (Percentage of respondents)

Information Technology
Information
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%


Nature of offshore engagements (contd.)
9

Offshore Models Summary Offshore Headcount
 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


Assessing organizational satisfaction
10
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


11
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

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

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
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

14
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”


Assessing organizational response to
15
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


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

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


18
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


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
Agree
More 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

Provider/Location Selection: Results (contd.)
20

Anti-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
Agree
3 Somewhat Agree
8% 5
…how we select locations 15
17 %
Agree

20 Strongly Agree
29
41% 12

Variation in responses noticeable


Provider/Location Selection: Summary
21

 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

Anti-offshoring pressures and Contractual /
Relational Governance: Results
22
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

Anti-offshoring pressures and Contractual /
Relational Governance: Summary
23

 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


Assessing perceived regulatory
24
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


Assessing perceived regulatory environment
uncertainty for offshoring: Results
25
Highly Highly
Predictable Unpredictable
Overall, 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

Assessing perceived regulatory environment
uncertainty for offshoring: Summary
26

 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


Limitations of this Study
27

 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


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


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