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Offshoring Drives More Savings Than Rate Cuts

ST Team
Monday, November 2, 2009
ST Team
The economic downturn has hit the IT budgets with full force, and as a result, firms are scrambling to react and optimize their offshore spend. Forrester VP and Principal Analyst John McCarthy says, “Our recent Enterprise IT Services survey (North America and Europe, Q2 2009) shows that renegotiating IT services rates is the top 2009 priority of these firms. 80 percent of the 931 respondents in the list consider offshoring as their critical priority. On average, we see clients getting actual reductions in the range of 4-7 percent based on current rates, type of work, and volume of spend.”

According to the Forrester report titled ‘Assessing Your Onshore and Offshore Staffing Ratios’, IT offshoring firms’ ability to shift more staff offshore drives more savings than the 5-10 percent rate reductions they have been seeking from their IT vendors. But, McCarthy’s advice to such firms is to move beyond these short-term strategies and invest in better specifications, which will enable them to move more work offshore and recognize the associated savings.

“Historically, Forrester has seen clients to move through four distinct stages in their offshore maturity; we call these stages bystanders, experimenters, committed, and full exploiters. During this evolution, clients not only build up trust with their IT vendors, but they also mature and add more rigor to their specifications, incident management, and governance processes. This has improved the amount of work that can be sent offshore by 10-20 percent over the past three years,” elaborates McCarthy.

The report also reveals that the budget crunch has encouraged firms to look at more than just rates. “Over the past 4-6 months, we have seen a dramatic rise in the number of inquiries related to IT services governance best practices,” concludes McCarthy.
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