Onshore or Offshore
The value of offshoring is most often represented by a labor arbitrage benefit (e.g. lowered costs associated with workers), which is reaped as soon as the offshore operation can be established, but then diminishes over time as labor costs rise. The downside of offshoring is that often business processes become harder to improve and evolve once they are delivered offshore making continued innovation difficult and expensive to deliver. This slowdown in innovation can erode Customer Loyalty making product and service upgrades harder to sell, increasing service cancellations, and creating opportunities for new market entrants to outpace market incumbents.
Offshoring may appear less attractive to businesses after considering a transformative strategy. Innovation and transformation diminish the advantage of lower cost offshore labor by yielding substantially more productive, transformed onshore processes that deliver the same or more output with less labor. However, the key to transformative strategy is broadening the focus of the analysis beyond a labor cost analysis, to a focus on revenues and net income. Focusing strategies completely on cost improvement, especially at the operating unit level, leads quickly to ideas like offshoring where the benefit is relatively fast, and uses less capital resources. Broadening the analysis to an impact on revenues leads to conclusions that include the impact to Customer Loyalty and Quality. A slight increase in revenues without a similar increase in cost can eliminate the advantage of offshore labor. When businesses consider the potential offshore impact to sales and revenue, the quick benefits of offshoring may seem less attractive. Transformative strategy by its nature engages leaders across the business in the same analysis and strategy resulting in a more comprehensive idea that blends the needs of all units into a single plan, and builds consensus and commitment.
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