Wednesday, January 28, 2009

In the news: IBM

IBM Announcement in Lansing State Journal - A Global Delivery Center. . .in Lansing Michigan.

What does this tell us about the Services shift? Quite a lot, actually. While the polemicists Lou Dobbs and Clyde Prestowitz think that globalization of services sourcing will doom us, that’s not the case.

The Services Shift is really about matching activities to the locations where they can be delivered at the best cost and quality. In many cases, that remains close to customers and/or the home office. For some activities, that may be in a remote geography. If a task is amenable to offshoring (or remote sourcing; see Ch 3 of the book), there are two basic reasons to source abroad:

  • It is a low-skill, commodity-type activity, where most firms compete on cost and strive for acceptable quality. Examples include first line call center support, medical transcription, geographic information systems mapping, and insurance claims processing, or

  • The firm must go abroad to find the talent it needs. Examples include genomics research, nighthawk radiology services, and some types of engineering services.

How to configure the services value chain is a complex problem. Many firms overshoot—sending too many activities offshore and then finding that coordination costs explode and outweigh labor cost savings. When the pendulum swings too far, firms often pull back a few positions (e.g. Dell, Apple, and American Express), but this is not a reversal of the trend. It is merely a mid-course correction.

So, IBM’s announcement is good news for the Lansing economy and Michigan State. But this is a move to optimize IBM’s global delivery model. Not a reversal of the Services Shift.

So-called Backshoring or Boomerang Outsourcing is a story that journalists REALLY want to write. Even when it’s just a small crosscurrent in a large wave the other way?

What do you think? Is the IBM announcement the beginning of a trend? Or merely a blip in the larger trend line? I'd like to hear from you.

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