By 2018, 40 percent of outsourced services will leverage smart machine technologies, rendering the offshore model obsolete for competitive advantage, according to Gartner, Inc. For more than a decade, the use of offshore business models has been a "go to" option in sourcing strategies, but Gartner maintains that the rise of smart machines will send organizations back to the drawing board with regard to their long-standing arsenal of sourcing approaches.
“Smart machines are not future fantasy; they are commercially available . According to Gartner’s analysis of external sources, more than $10 billion have already been purchased through more than 2,500 technology companies,” said Frances Karamouzis, vice president and distinguished analyst at Gartner. “For the business and IT services industry, this translates to a new source of fuel for the industry - namely ‘virtual talent.’ It's faster, cheaper and more predictable.”
This does not mean that there no longer will be offshore services and all of these long-standing contracts will disappear. It does mean, however, that it is not going to be the primary means of cost control or speed to competitive advantage.
“The offshore business model represented a significant milestone in the business and IT service industry because it recalibrated the single largest driver of cost - labor,” said Ms. Karamouzis. “The new normal is hyperautomation arbitrage, which will be the new avenue for a completely different cost structure through virtual labor. It also addresses scale and predictability.”
Smart machines are not always complete replacements for subject matter experts (SMEs) or other labor. There could still be a role for offshore centers, albeit changed and refocused. Human labor is still part of the mix, and cheaper human labor always will be appealing to business leaders.
All types of smart-machine-enabled services will be leveraged in renovating core efforts, as well as exploiting the new efforts. As a result, the following market implications will be critical for sourcing executives:
“Organizations must embrace the market change and be able to evolve in light of the new fuel of virtual labor,” said Ms, Karamouzis. “This means stopping the use of offshore business models as a crutch for cost savings and starting to build the capability to analyze, rethink, reimagine and recalibrate your sourcing portfolio, and appropriately balancing risk with business value and cost.”
More detailed analysis is available in the Gartner report "Predicts 2016: The Rise of the Machine Leads to Obsolescence of Offshoring for Competitive Advantage”.
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