Enterprise Software

More companies realizing the downside of outsourcing


The latest survey from Robert Half Technology says that most CIOs do not outsource technology jobs outside the U.S. Ninety-four percent of the CIOs surveyed said their firms don't outsource. Nearly six in 10 CIOs whose companies do outsource said they are discontinuing the practice mostly because of the management challenges it causes.

A piece in the most recent issue of Workforce Management says that American companies are starting to "backshore." Backshoring is the term used when companies bring jobs back home after experiencing disappointment and frustration with remote, foreign workers.

The article says that backshoring is driven most by five factors:

  1. Cultural misunderstandings -- Offshore workers don't understand our culture and so never have an understanding of our product requirements.
  2. Unexpected management needs -- Domestic management must do a lot of hand-holding with overseas workers. "You can't ever get rid of your workforce management responsibilities."
  3. High turnover in the offshore workforce -- Call center attrition rates are around 40 percent to 50 percent, and IT rates are around 15 percent to 20 percent.
  4. Low skill levels -- If a company tries to offshore highly complex work, it can't find the skills, and it can't train the people because they don't have the background.
  5. Work that's too complex -- The more cutting edge the technology, the harder it is to offshore. Well-defined tasks are better for offshoring.

The Workforce article cites a problematic relationship between an offshoring group and the Los Angeles-based Arvani Group, a management consulting firm that helps international mobile and wireless companies. Arvani contracted with a group in India to do some research. It was hoping to take advantage of the time zone difference -- provide a request the night before and have the results the next morning.

Instead, the research reports came back a week late, containing the same information Arvani had sent, only in a new format. Arvani ended the contract and brought the work back to a U.S. firm  it had used before.

If your company has outsourced, did it find that the problems outweighed the money savings?

About

Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.

27 comments
melissa
melissa

Hi there - With the candidates virtually ignoring the issue of offshoring and how it affects American jobs, there is a new, albeit small revolution going on with outsourcing that actually helps Americans. I am writing to ask that you address the issue of homeshoring versus offshoring as a prospect for strengthening the American economy . There are hundreds of employers based in the US that are tapping a previously neglected population for home-based work, usually for call center functions. These companies employ the disabled, caretakers, and others with limited time or mobility, rather than sending jobs to countries overseas. Studies have shown that the model works - and it keeps valuable jobs in America. With all of the backlash against offshoring, it makes sense that our politicians recognize these companies, and maybe even plan to give them incentives. I am pretty sure that the candidates are simply ignorant of the issue but incentives for employers, combined with the actual value of this business model, are sure to make it a hot issue in the months to come. A few of these employers include LiveOps, Alpine Access, and Working Solutions. These are primarily call centers - however, many homeshoring employers actually employ nurses, teachers, and other specialized workers on a homeshored basis.

Andrew_Batka
Andrew_Batka

Send your congress person and senator's this letter! The H1-B program, which Congress created in 1990 to ease the claimed temporary shortage of skilled workers in the high technology field, has failed the American worker. In 1998, as a temporary remedy for a claimed desperate labor shortage in the high technology field, Congress nearly doubled the number of H1B visas available for the following three years, and imposed a fee on employers that was meant to fund training programs to improve the skills of U.S. workers. If we are indeed collecting fees to train American workers then how could we need nearly double the number of H1-B visas? More than fifteen years after the inception of the H1-B program, employers continue to call for more H1B visas, while little effective training of U.S. workers has been accomplished, and wages and other conditions in the industry have deteriorated. Where can the American worker go to request training which should be paid for by these fees? One of the fundamental flaws in the H1-B program is that it does not test the U.S. labor market. As the DOL acknowledges on its own website, ???H1-B workers may be hired even when a qualified United States worker wants the job, and a United States worker can be displaced from the job in favor of the foreign worker.??? Why as my Federal Representative would you allow this to happen? Employers are simply required to file an attestation of the wages and working conditions offered to the H1-B workers with the Department of Labor???s Employment and Training Administration. The Department of Labor has no authority to verify the authenticity or truthfulness of the information; the Department can only review the application for omissions and obvious inaccuracies. Again as my Federal Representative would you allow this to happen? The United States Government Accountability Office (GAO) concluded last year that the DOL was failing even in that minimal task. For example, from January 2002 through September 2005, DOL electronically reviewed more than 960,000 applications and certified almost all of them. Moreover, GAO found over 3,000 applications that were certified even though the prevailing wage rate for the application was lower than what is required by statute, in some cases, more than $20,000 lower than what is required by law. This says to me the laws you helped create are being broken, yet you are not taking any steps to fix them. Would you agree with me when I say there are enough unemployed people here in Michigan that we could train to fill these jobs? The H1-B program was enacted to fill a spot labor shortage, while workers in the U.S. obtained adequate training and education in high tech and professional jobs. In reality, the poor design of the H1-B program has failed to meet the training objectives, and instead has facilitated and accelerated the outsourcing and off-shoring of jobs. I fail to understand how you could allow legislation to become enacted that helps ensure my job will be outsourced, after all I???m helping to pay your salary! The largest users of the H1-B program are outsourcing firms, whose business is to move jobs overseas. These firms import H1-B workers, train them in U.S. companies, and then send the workers back home, taking with them the jobs that they were previously doing in the United States. In fact, in many instances, U.S. workers were forced to train their H1-B replacements. How is it than you can take your pay while passing or allowing programs to remain in place that ensure your constituents have to train an immigrant to do their job? I mean really wasn???t the H1-B program developed to bring over HIGHLY Skilled workers for shortages? If they are so highly skilled why does the American worker have to train them? Your immediate reply and focus on correcting this degrading and critically ignorant program would be greatly appreciated! Thanks, Andy

MDub
MDub

After the dust settles on this corporate foible, the REAL question to be answered is: "When will American corporations reinstate I/T as a pivotal and strategic partner?"

professionalkarthi
professionalkarthi

Cultural misunderstandings is Definitely a problem .it causes more cultural impact on outsourcers site ... The outsourcers got their name changed, slang changed and life changed Night Shifts also cause more family problems to them

softwarejanitor
softwarejanitor

Wish it were true around here (Austin, TX area). It seems like there is no end to companies around here who are still outsourcing or bringing in cheap H1B and L1 imports and laying off Americans. There are large gluts of skilled and experienced people applying for every opening. People I know who have been laid off have had a very hard time finding new jobs, and have usually had to settle for less money than they used to make.

fjhart
fjhart

What about nearshore? Specifically, if the nearshore team is both the technical and relationship/personal interface with the benefits of offshore cost advantage .... I'm thinking of say vancouver, British Columbia. There are many California based technology companies who have campuses here in BC to take advantage of the technology pool ....

Tony Hopkinson
Tony Hopkinson

Even a business halfwit like myself could have told them some of the problems they were going to experience. The Management one was a no brainer, which leaves me thinking some people with no brains were making the decisions. Generally your in-house staff in a half way decent company hold their own hands, farm it out onshore, off shore , outer damn space is obviously going to leave a considerable short fall, seeing as that was used as an excuse to jetison the people who knew what went on at the sharp end. It will be interesting to see how much it ends up costing them, off-shoring and backshoring. No doubt they'll award themselves a nice bonus....

jmgarvin
jmgarvin

The biggest problem I've seen with outsourcing is cultural. If I tell a worker in the US to build an App that does X, they'll build an app that does X. If I tell an outsourced worker (be it in India, China, or Russia) to build an App that does X, they'll need me to fill them in on what language to use, specific algorithm's I'd like to see, interface requirements, all kinds of questions on HOW to build it... I'm not saying we work better, but US workers are FAR more independent (typically)*. *YMMV

SlappyMcnasty
SlappyMcnasty

It is just like the late 90's where anyone who could slap together 2 lines of HTML was calling themselves a web developer. People overseas who have no real passion for technology are getting into technology because that is where the money is. My personal experience: 5 years ago I would say 7/10 visa contractors I brought on worked out, about the same number for US native contractors. Today, I have to weed through 10 times as many resumes to maybe get 4/10 who actually get it. The number for US natives is still 7/10. I think the discrepency between the two is that US natives who go into technology are doing it because that is what they love where as more and more overseas folks are going into it because that is where the money and jobs are. That said, there are still not enough US native resources available...

ben@channells
ben@channells

was run by the UK Government along similar lines, pushed forward by a IT agency Spring IT and EDS. Over a 2 year period 20,000 visa were given away, when the British embassy in New Deli was reporting 150 Visa being stolen each month and sold on for ?10,000. Barclay's Bank famously sacked over 150 FTV's workers as they did not have the qualifications or were forgeries. the UK dept of Trade has a IT training program written in India delivered late at an extra cost of ?40 million and inside 1 year fraud had cost ?180 million. the UK post office was going to have the largest office automation systems in Europe put in written mostly in India, alass the code quality was so poor and Oracle table not indexed or linked the work was spread around the UK at cost of ?500 million. the decission taken by UK CEO of Fujitsu. the fear was that if delivered by India comtractors to the DTI the fines and penalties would bankrupt Fujitsu as a global provider. the UK foreign Office created a project to deal with all the work visa request and fordged papers tracking names of requets and expiration. the work outsourced to India 3 months after going live the database details of every visa request was listed on the IIS6 web server. No need for SQL injection, as the server and sql2000 had zero patches or services packs

tfsmith
tfsmith

Hottest city on Earth. Loaded with IT people working in other fields because jobs went to Mumbai. Worked for Circle K on a hardware software update roll out. 300 people 95% worked in other fields because b1b's and outsource (Nat. hq of movement is in Scottsdale). Search here sometime.

bwmcdaniel
bwmcdaniel

I am an American and I have started a small IT/BPO company in Romania. Although we are still new, I have had a VERY positive response from companies in the US and Western Europe because I am here on site working alongside, training and managing my team. I can bridge the gaps that are inherent to offshore outsourcing. Also I am planning to set up other inhouse offshoring facilities for companies to do the same.....

mapexvenus
mapexvenus

I think you really hit the nail on the head. While the US is still not able to meet the demand for qualified technology workers, the 'supply' that comes from overseas is high-volume but very low in quality. I am surprised and disappointed that the large outsourcing firms that try and supply to meet the demand on the US are not doing enough to improve the quality of resources they provide. I think the lack of quality is not just in purely technical areas, in fact, I think that the technical skills are present, but there are HUGE gaps in communication skills, cultural assimilation, methodology, and work ethic. I would like to see these outsourcing firms spend some of the dollars they earn from the US in better-equipping the resources that they supply. On the flip side, I also believe that a portion of the problem has to do with firms in the US not understanding the outsourcing model thoroughly. I have seen too many outsourcing initiatives where firms hop on the bandwagon without adequate planning, or clearly defined requirements. If you want to get your outsourcing strategy right then you need to do the due diligence and planning that an outsourcing strategy requires.

kcarlton
kcarlton

I was a victim of outsourcing. I worked for a company that hired too much too fast and as a consequence had high operational costs. So instead of doing the smart thing by tightening their processes and automating more and allowing those affected to move to "higher" business functions, they laid off (read fired) a ton of people which continues to this day. I wouldn't be so angry if they had just admitted that they screwed up and needed to fire as many people as they need to reach a bottom number. But they fabricated a method using performance evaluations and just got rid of people that way. I'm sure they regret losing a ton of business knowledge. A lot of people worked their many years and were fired. Some of that knowledge they will never see or be able to use from outsourcing.

srussell
srussell

I'm a senior programmer. I've worked in both large and small shops. Most companies don't outsource because of scarce labor. They outsource to keep the expenses off the balance sheet. In many cases, the outsourced IT cost is more expensive than the in-house IT cost. Especially if you take into account the non-accounting costs as mentioned in the original article. As for the perceived tech labor shortage, the department of labor statistics attributes this to the expectation delta. In short, companies want to pay less and job applicants want to earn more, even though the prevailing wage if somewhere in between. So it is true, there is not enough highly skilled domestic tech workers who are willing and able to work for the price companies are willing and able to pay. But that does not mean that there are not enough highly skilled domestic tech workers. Some other considerations are: Moral and productivity may suffer when you outsource. You may not get a dedicated resource who knows your business. Your outsourced group may serve their own interest instead of your. Basically, outsourcing IT is about as smart as outsourcing operational or financial functions. Many companies do and it is not smart.

Tony Hopkinson
Tony Hopkinson

In nearly all occasions, it's simply based on cost, or worse still manipulating the balance sheet to look like there's been some big change in the operating figures. As soon as your driver is cheap, you gravitate away from qality and towards shoddy. There's no point in whinging about outsourcers not investing, the business model is he who is cheapest gets the business, so any cost (and quality is a always a cost) will obviously be dispensed with. Amazing isn't it these guys go to college , do courses, university, get paper coming out of their ears and they haven't learnt the consumer's most basic lesson. You get what you pay for!

Ed Woychowsky
Ed Woychowsky

There?s a company that hit upon, what they considered a wonderful money saving idea. Every eight to ten years they would lay-off ten to twenty percent of their IT staff and freeze salaries and head-count for a couple of years. The remaining staff would accept this; because they?d saw what happened to their former co-workers and would consider themselves lucky just to have jobs. This plan worked pretty-well for them for several layoff cycles. Unfortunately, for the company, the layoff cycle hit in 1997, just as the job market ignited for developers. The remaining employees, instead of watching those that were let go struggle just to get by; watched them get two or three times more money. To compound the companies? troubles, those that were laid off looked upon the company as their private head hunting grounds. It was like a dam bursting, with fifty or sixty percent leaving instead of the usual ten or twenty percent. The company had to replace hundreds of people at the increased market rate. Aren?t money saving ideas wonderful?

SlappyMcnasty
SlappyMcnasty

"So it is true, there is not enough highly skilled domestic tech workers who are willing and able to work for the price companies are willing and able to pay." I can only speak for my situation, but there is a lack of skilled technology workers in my area. I work for a company that pays on the high end of the pay scale and for the higher end jobs we are lucky to get a single qualified person to apply. Most of the positions are in the 80-110k range, some higher. The less senior jobs (below 80k) we can find people. The other piece of anecdotal information I have is that I really don't know anyone who is looking for work. I often get calls from recruiters who have old versions of my resume to see if I am interested or if I know anyone, 99% of the time I can't find anyone who is looking to move. Side question, because maybe I am just nuts and selling out for less than I should. What do you see as the right salary for a application developer with 5 years of good experience? 10 years?

ben@channells
ben@channells

Soon for a NEW president of the USA, choose wisely, we will not be able to get our incompetent MP's out for another year

tfsmith
tfsmith

watch my 'fellow' staff memebers change from 'Americans' to b1b's or 'new American's of Asian decent' (got citizenship in college) and fairly soon every person in the org. (except upper mgr's) was replaced. I understand from my friends in Ca. that the trend continues and I have seen the same trend here in Phoenix. So, what happened? The wages dropped like a stone. Everyone wants a job and more apps for a job = lower wages. 'The burden of wages in the U.S. ..', familiar song but one which does not take into consideration the fact that there is (as pointed out else where in this thread) a world of difference between the culture and attitude here (in U.s.) and else where about user needs and job performance.

Ed Woychowsky
Ed Woychowsky

One winter?s day the manager of a restaurant where I was working after school came-up with the idea of saving the ?waste heat? from the roof-top refrigeration units, so he boarded-up the exhaust vents. His idea was that this heat would then heat the building and thus save LOTS of money. Really can?t say what the total savings were, especially after the compressors had to be replaced and all of the food went bad. On the plus side, the refrigeration contactor liked the manager?s idea.

jmgarvin
jmgarvin

Companies try to save money, but always end up spending FAR more in the end.

jessiejames2727
jessiejames2727

Well, Snappy. I am in the Minneapolis market and I have been without work for the past four months. Oh, I did get an offer this week-- for the same salary I made in 2000. Guess they are hoping to find an H1-B.

Tig2
Tig2

And I agree that he is underbilling. At his level, he should be billing closer to $150- his industry is a specialized one and the offshore developers are better able to produce when he is available to manage the architecture. But as I said, there are a lot more techs than jobs here. Sometimes the better path is to take what you can get. It could easily be that Slappy is looking for more specialized folks that are in shorter supply.

JackOfAllTech
JackOfAllTech

Is that for long-term clients? I charge $50/hr for house calls to private individuals, $100/hr for companies on short-term/once-in-a-while calls. Your friend may be underbilling himself.

Tig2
Tig2

I find just the opposite to be true. But then, I do an awful lot of networking with other IT pros in the area. PMs are a dime a dozen from what I can tell, senior level developers are spendy people- I know one with about 25 years. He bills $75/hr which is about right. And one of the largest employers in our area is renown for low-balling anyone that walks in the door. And can't figure out why no one will work for them. Next time you're looking for someone, drop me a line. I may know someone.

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