Reader Question: Why is IT Process Automation better than Off-Shoring?
Third Sky Expert:
Reginald Lo, Vice President of Professional Services Third Sky
Before answering this question, one must ask “why was off-shoring pursued in the first place?” Off-shoring was primarily seen as a way to reduce labor costs. There was also the additional benefit for global organizations to take advantage of a follow-the-sun approach, i.e. 24x7 working hours.
What is interesting is that IT Process Automation (ITPA) achieves these same goals more effectively in the long term. For example, if an organization pays for labor, even if it is cheaper labor oversees, that dollar of operating cost returns no value in future years. If the organization invests in ITPA, it’s a capital spend that will return value in the current year as well as each subsequent year and labor cost, whether onshore or offshore is dramatically reduced. An investment in ITPA ends up being “smarter” than the spending money on off-shore labor. Both approaches, off-shoring and ITPA, helps organizations achieve the 24x7 model.
Why haven’t organizations been investing in ITPA compared to off shoring?
Market dynamics are reaching a tipping point where the business case for investment is changing. Off-shore labor is getting more expensive (although it continues to be significantly less expensive than on-shore labor with the exception of the hidden costs described in the next paragraph); and, ITPA is getting less expensive through easier configuration, better adaptors/integrations to support orchestration between multiple tools, etc.
What are the hidden costs of off-shoring?
Organizations are also realizing that even though there are direct cost savings from lower labor costs, there are many hidden costs, some tangible and some intangible, that erode the value proposition of off-shoring. For example, there may be a skills / experience gap between on-shore and off-shore resources, language / cultural barriers, time-zone barriers that create challenges for collaboration, international travel costs, and excessive off-shore staff turn-over. ITPA helps you avoid these hidden costs.
So what does this mean?
Before rushing to a decision to off-shore an activity, carefully compare the business case for automation versus off-shoring. You may find that automation may. If you think you’re done maximizing savings by off-shoring, you may be missing out on addition cost savings opportunities. Look to automate activities that are occurring off-shore today to reduce your exposure to the hidden costs of off-shoring and to better integrate what happens off and on-shore.