He said Lowe’s is changing its strategy around third parties and vendors. Now, the firm will work with fewer third-party vendors and partners who will focus on some niche activities.
Ramsay declined to comment on specific vendor companies that Lowe’s works with. “I also think some of the promises around outsourcing have not truly been realised. We all have our outsourcing stories of initiatives that went well and those that did not go so well,” said Ramsay.
“I think there are a lot of strategic advantages to insourcing, around talent, around focus that I think you struggle against sometimes from an outsourced situation. A lot of the outsourcing activity is very much commoditised. In the same way, that there is no money in selling hardware anymore.”
Executives at India’s largest software firms would be hoping that Ramsay and Lowe’s insourcing strategy fails, so that they can renew dialogues for fresh business. In a year in which global IT spending is expected to drop by as much as 5.5%, according to technology researcher Gartner, and amid rising concerns of a slowdown in China triggering a global meltdown, customers cutting back on bread-and-butter outsourcing is the last thing India’s $146-billion IT industry needs.
To be sure, their top customers such as Citigroup, General Electric and Bank of America are still spending hundreds of millions of dollars on outsourcing to India. And that demand will not evaporate overnight, experts say.
“The discussion on insourcing is a bit like Groundhog Day: it keeps popping up time and again. It is not a secular trend suggesting a shift away from outsourcing. However, for mature organisations, insourcing offers an additional instrument in the sourcing tool box,” said Thomas Reuner, managing director at US-based HfS Research.
But Lowe’s is not the only company rethinking its outsourcing strategy. According to executives familiar with discussions, Indian firms’ top outsourcing customers such as AIG, AstraZeneca and Deutsche Bank have also insourced back some of their software development projects into their captive centres in India.
The most famous example of insourcing was provided by General Motors in 2010 when the company’s CIO Randall D Mott reversed the automaker’s outsourcing policy and announced that 90% of its IT would be handled by in-house staff over 3-5 years.
Earlier this year, in an interview with WSJ, AstraZeneca’s technology chief David Smoley had said that the company would slash its annual outsourcing spend of $750 million by half over the next two years, with the company betting big on cloud computing and reducing its need for physical technology infrastructure, local networks and computers.
AstraZeneca did not respond to a detailed email questionnaire seeking comment as of press time Tuesday. AIG and Deutsche Bank declined to comment for this story.
“Key factors to insourcing are: 1. Build vs buy. CIO’s who like to take back application development. Those who have app dev skills often want to have more flexible capabilities,” said Ray Wang, founder of Silicon Valley-based research firm Constellation Research. “2. Strategic vs commodity. Political shifts on strategic requirements. More strategic, more likely they want more control. 3. Renewal versus new. Stabilisation of existing environment. Once they have found a way to keep environments in play, they usually explore new stuff on their own vs work with a partner.”
Indian IT’s traditional business model faces a significant threat of disruption if this trend gathers momentum, amid the advent of automation which is already starting to make the insourcingoutsourcing debate irrelevant.