IT services get closer to home

After more than a decade of offshoring IT services to countries with lower wages, can CIOs afford to consider sourcing work stateside anymore?

The answer, say outsourcing experts, is increasingly "Yes."

Bob Bayer, IT director at Forest City Enterprises, recently transferred the $1 billion real-estate company's previously outsourced help desk to New York City-based Genesis10, which has IT service centers in Kansas City, Mo.; Cleveland, Ohio; Troy, Mich.; and Atlanta, Ga. When tier-one (a.k.a. "frontline") support was offshore, "communication was a challenge--both the strong accents and the lack of understanding," Bayer says. "Knowledge transfer was also a challenge. As things changed or we introduced new functionality, it was difficult getting the offshore team up to speed."

Since moving the help desk to the United States, Bayer says, end user satisfaction is up, the outsourced team adapts more quickly to changes, and integration with the in-house tier-two and tier-three support teams is tighter.

According to a recent Forrester Research report, there are a number of factors accelerating the trend toward domestic outsourcing, including the need for business alignment and agility requirements, rising salaries and attrition rates in India, visa issues preventing offshore vendors from providing onsite resources, and the political demonization of offshoring.

In addition, U.S.-based outsourcing staff are rated better in several key capabilities, according to a survey by outsourcing analyst firm HfS Research. Of the 215 enterprise buyers interviewed, 75% said domestic IT service providers offered good cultural understanding and communication skills, while 30% said Indian vendors did the same. Similarly, 82% gave U.S. workers high marks for business understanding and 72% were pleased with how they took initiative, while, respectively, 37 and 38% of respondents gave the same accolades to India's workers.

In the survey, the enterprise buyers also said they would consider outsourcing IT services domestically if they could save 16% compared to doing the work in-house. For India, they required a 22% savings.

Companies that examine the total cost of outsourcing may realize that domestic outsourcing can be less expensive than offshoring, says Stephanie Moore, an analyst with Forrester Research. The domestic delivery model may offer increased productivity, fewer travel costs and less management overhead.

"Ten years on, mature buyers of offshore outsourcing are saying the cost benefits might be outweighed by other values," says Phil Fersht, HfS Research founder and CEO. "You might have saved 30% in costs but lost 30% in terms of the ability to understand the business."

That doesn't mean that CIOs are bringing back their all their offshored IT and planting it in the United States. More than one-third of IT infrastructure outsourcing deals and one-half of application outsourcing deals incorporate offshore or nearshore delivery as part of the contract, according to Bryan Britz, a Gartner analyst. Early adopters have also invested years building their offshore outsourcing capabilities.

But for new and higher-level IT requirements, outsourcing closer to home may be the better choice. "The next generation of Fortune 500 companies will benefit from a mix of [outsourcing locations], driving greater flexibility and less exposure to any one service provider--or sourcing model," says Fersht.

Read more about outsourcing in CIO's Outsourcing Drilldown.