The art of jobbing out IT functions is at a crossroads, says outsourcing expert Atul Vashistha, and that’s putting everyone on a steep learning curve as offshoring quickly becomes more sophisticated, with additional project management responsibility shifting to overseas providers.

“There are major changes coming to outsourcing, and they’re coming soon; even within the next 12 months,” says Vashistha, chairman and CEO of NeoGroup, an outsourcing and governance consulting firm. “Companies will be looking for more than a simple cost arbitrage in the future.”

Vashistha, a panelist at last week’s Financial Services Roundtable Shared Services Summit in Chicago, says that for banks, transferring  pre-determined labor-intensive back office functions offshore primarily to reduce wage pressures—has matured, leaving less room for future cost savings. Additionally, the recession has pressured both “domestic” banks and offshoring firms in India and elsewhere—which are suffering through their first market correction.

In response, offshoring arrangements will rapidly shift to include a higher percentage of more sophisticated “managed services” as opposed to the service level agreements that have dominated offshoring. Vashistha says managed services agreements may take up to 25 percent of new offshoring contracts by 2010, suggesting more management and strategic work will be done outside the bank than ever before. “Suppliers are going to be doing the work that bank staff  did only 12 months ago,” he says.

Vashistha says the trend will require improved vendor and source monitoring and geographic diversification, risk mitigation strategies and cultural education. He suggests institutions take a proactive approach in training and monitoring foreign workers and managers. “You have to understand the skillset of the labor pool on the supply side, and you need to integrate those labor pools.” 

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