Among the trends that will impact the industry in 2014, Everest Group founder and CEO Peter Bendor-Samuel predicts that business stakeholder groups will become more influential, while immigration reform could see Indian outsourcers lose their edge.
Bendor-Samuel expects to see influence, budget and decision-making power shifting away from CIOs, CTOs and shared services organizations to business stakeholder groups in 2014. Business units behave differently than IT or shared services organizations, he says. “Business stakeholders tend to favor a phased adoption approach. They want to purchase outcomes and functionality, and they want to achieve results quickly.”
This has clear implications for traditional shared services groups, he says. “Central groups may become frustrated as their agenda becomes more tactical.”
Long term, the primary responsibilities of these groups will revolve around integration and coordinating multiple outsourcing initiatives. Companies will require new tools, new processes and potentially different kinds of talent to accommodate this shift.
The ultimate goal, he says, is “a more loosely-coupled set of processes and technologies that allow business stakeholders to operate on their own innovation trajectories without out losing all of the benefits of integration.”
Capital appropriations as a means to control outsourcing spend will become a less powerful mechanism, Bendor-Samuel says, because software-as-a-service and similar types of services (i.e. infrastructure-as-a-service) do not require as much upfront capital.
“The underlying structures by which we control our business will have to be rethought,” he says. “It will be less about technical infrastructure and more about how to drive adoption, monitor innovation trajectories and protect yourself from gaps that result as processes and technologies diverge.”
In addition to enjoying a cost advantage on services sent offshore, India-based outsourcing providers have attained a pricing edge by bringing in Indian workers holding H1B or L1 visas to work on-site with their U.S. clients. However, says Bendor-Samuel, that edge could disappear if the House of Representatives takes up immigration reform in 2014 and adopts an approach to visas similar to language included in bipartisan immigration legislation passed by the Senate in June.
Among the provisions in that legislation: Companies where at least 15 percent of the workforce is comprised of H-1B visas must recruit U.S. workers before foreign ones, and they would have to pay a higher prevailing wage rate to visa holder employees. And under the so-called “50-50 rule,” companies would no longer be allowed to have more than 50 percent of their workforce on H-1B visas or L-1 visas.
“It would be a really big deal if Indian firms lose this advantage,” Bendor-Samuel says. “They may have trouble attracting and retaining the right kinds of talent in the U.S. They would have to hire tens of thousands of people really quite quickly.”
Noting that Indian companies currently use about 60-plus percent of H1B visas, Bendor-Samuel says “that talent pool could become more widely available for in-house and other providers.”
While acknowledging that it’s possible the House may not consider the immigration issue this year, Bendor-Samuel says “the probability of it happening is still quite material” because both Democrats and Republicans have significant interest in passing some form of immigration reform. Any reform will likely retain at least some of the H1B provisions, he predicts.
A growing number of outsourcing buyers “no longer believe everything should be moved offshore,” Bendor-Samuel says, recognizing that a consistent workforce may result in increased intimacy with customers, higher productivity and enhanced business understanding. Due to this rebalancing, he says, “The landed model is more important, the global in-house center (GIC) model becomes more important with vendor governance potentially moving into their domain.”
The financial services industry is leading the move toward GICs because it believes more direct management control makes it easier to satisfy regulatory requirements and protect sensitive customer data. But Bendor-Samuel predicts other industries may follow.
This article appeared first on Nearshore Americas’ sister site Global Delivery Report.