IT future shifts from labor arbitrage to productivity

The labor arbitrage/offshoring model is powerful and relatively simple — compared to investing in productivity for U.S. workers over the past couple of decades. Perhaps your company is like most enterprises in America, having opted for this strategy to achieve cost savings. I believe it’s important to recognize that the arbitrage/offshoring model took companies’ attention away from investing in internal productivity improvements. But there are fewer opportunities now for the labor arbitrage model since it is maturing, and new barriers are arising for sending/maintaining U.S. work offshore.

American businesses face a changing climate where it’s less acceptable to offshore work now. In addition, we have the looming prospect of increasing barriers to offshoring ranging from a potential border tax on services, immigration reform and reform of H-1B visas — all of which lead to higher costs. In addition, offshoring has unintended consequences such as the time zones delay that can affect productivity, and there can be “outsourcing bloat.” Although the per-unit labor cost in the arbitrage/offshoring model is lower, other unintended consequences incur more labor or less communication and less alignment.

There is nothing wrong with labor arbitrage, but U.S. companies have effectively been taking the easy path and now face the need to choose an alternative strategy for cost savings. Now that it’s less socially acceptable, an alternative is essential. That alternative is investing in technologies that improve productivity of U.S. workers.

The good news is it’s very clear that some of the ingredients that allow organizations to change productivity have the potential for a cost impact that is similar to or greater than offshoring. As attention increasingly turns to these productivity aids, organizations find that the tools provide dramatic improvements in productivity across pretty much every aspect of IT and business processes.

Productivity vehicles

Your company can dramatically improve its productivity through investing in these vehicles: IT simplification and standardization, digital technologies, agile methodology and DevOps. They each hold the promise of dramatic productivity improvement. 

Making IT tasks simpler and more standard is the simple first step to becoming more productive. Implementing digital technologies is the next step. Automation and Robotic Process Automation (RPA), for example, allow organizations to automate work that was being done by people and can increase the productivity of the remaining workforce. At its heart, cloud combines simplicity and standards along with a huge amount of automation, thereby creating massive increases of productivity.

A notable cloud use case is Revlon’s IT infrastructure. The company went from having over 100 people managing its data centers to five after moving to the cloud. That’s an enormous jump in productivity.

There are many use case examples in DevOps. For example, in companies that apply automated testing, self-provisioning and agile methodologies into existing shared services organizations, we’re seeing 30 percent or more productivity gains.

We’re seeing examples of several hundred times improvement in productivity in enterprises that break the IT mold and change from a functionally led shared services organization to an IT-as-a-Service (ITaaS) structure incorporating end-to-end, cross-functional teams.

In the case of call centers, implementing RPA allows companies to improve customer experience while reducing the number of call center agents by 40 percent. When they add cognitive-computing agents, they achieve a further 20 to 30 percent reduction of FTEs.

Given these benefits to date, it’s clear that organizations can lower their labor costs even more dramatically by improving productivity than by moving the work offshore. Although the IT focus for the last 10 to 20 years has focused on reducing costs by offshoring, I believe the next 10 years will be a story of increasing productivity in the workforce.