Software

Outsourcing and offshoring, revisited

Patrick Gray discusses the comments that he received after writing about his fondness for outsourcing and offshoring.

I received quite a few emails regarding my previous column "Why I Love Outsourcing and Offshoring," and the comment counter seems to be moving rapidly upward (I do my best to respond to email comments, so if you'd like a response, please use that channel). I wanted to discuss some of the themes from the emails I received, and start with the comment that this is an obviously contentious issue, but one that is well worth discussing since it has clearly affected our profession dramatically.

Cost cutting and Wall Street fat cats

Several comments covered the familiar ground of nefarious corporations and greedy corporate titans launching ill-conceived outsourcing and offshoring initiatives all in the name of the mighty dollar. Filter out the bromides and self-righteousness, and you are absolutely correct: Many of these initiatives are cost-driven.

I found it interesting that these comments could originate from people in IT, a profession long tasked with making internal operations most cost-effective. In most cases, we in IT are not hired to "play" with technology, but to implement new technologies that will save companies money. Do you lament the lost jobs in the mail room every time you perform an upgrade on your corporate email infrastructure, or consider the thousands of typewriter repairmen and typists put out of business by the upgraded office suite you provided? Corporations generally exist to make money; this is not a conspiracy or somehow evil; it's a fact of a market-based economy.

"Good American jobs"

Another common response to the initial article was that outsourcing and offshoring cost "good American jobs." I find two flaws with that line of reasoning. First is the assumption that the United States should have some sort of natural monopoly on technology jobs. Just as manufacturing "hops" to a different country every few decades, sub-sectors within technology will likely do the same, and a sense that the U.S. is somehow entitled to technology jobs is naïve at best and representative of far more disconcerting motives at worst.

There's no escaping the fact that technical jobs based in the U.S. have disappeared at an alarming rate in the past decade, which brings me to my second flaw: that some of this predicament is self-made. The IT "gold rush" during the dot-com boom and bust, combined with the Y2K "non-event," soured many to the IT profession. Whether legitimate or not, a global recession came on the backs of unrealistic expectations combined with unrealistic technical promises that were especially embittering to a generation of young workers who bought into the promise of an IT career and subsequently found a jobless wasteland. Executives are cautious to invest in IT talent in some industries, just as computer science classrooms remain sparsely populated.

Talking about globalization is a debate worth having, but it's not something that I believe can be reversed based on the historical record. The textile industry will likely never return to the eastern seaboard of the U.S., but rarely do I encounter those lamenting all those "good American jobs." If Western IT workers acknowledge that we're competing globally, on a personal level and as an entire profession, this acknowledgement allows you to make career and professional decisions that strengthen us individually and collectively, versus pinning our woes on an imagined foreign boogeyman. Even the idea of a U.S. company is a bit of a throwback from a bygone era. Most large companies make the majority of their income outside the U.S., and consumer companies in particular regard most Western markets as stable, while the high-growth markets they are most interested in are also the ones enriched by newfound wealth from offshoring.

But what about quality?

A point that's highly relevant to this discussion is the argument that several readers made that offshore resources lack quality compared to local ones, a contention I largely agree with and expressed in the original article. Some got into offshoring with the naïve assumption that you could find local-level technical expertise, language ability, etc., for a fraction of the cost, akin to assuming that the $25 "Rolex" sold on the street corner is equivalent to the real thing. This is the core of how the IT profession is changing: everyone is realizing that you get what you pay for.

Continuing with the watch analogy, there are quite a few people who are content with a Timex, and a smaller group that demands a Rolex. While you'll never get Rolex quality at Timex prices, there's a healthy market for each, and appropriate pricing for each. As many readers mentioned, companies are seeing the value of local, domain-specific knowledge that can't easily be replicated or offshored. If you're concerned about offshoring affecting you, strive to become a "Rolex resource." While the corporate profit motive may be off-putting, it's a fairly even-handed judge: if you're more competent and more valuable than all the alternatives, you're likely to stay put. Demonstrate why you're the Rolex (rather than complaining about the Timex's price tag) and you're set.

In addition, for better or worse there are several positions where quality simply isn't valued. Witness the rise of highly functional, lightweight laptops for $200, a price point unimaginable just a few years ago. Consumers want an absolute minimum cost, so things like tech support are also going to be barebones at best.

Is "love" a little too strong?

I love the IT profession. It has allowed me to see the world, interact with all manner of amazing people, and get an inside look at the guts of renowned companies and smaller shops alike. I occasionally wonder where I'd be had I been born 100 years earlier, and in just about every conceivable scenario it's more likely I'd be operating a drill press than working with executives. At the most cerebral level, outsourcing and offshoring extend these opportunities to a wider audience, lifting entire nations out of poverty in less than a generation. At a practical level, the influx of new participants in the IT industry helps all of us improve our game. I'll spare you the bromides about change, but many IT workers have told me that the intellectual excitement and dynamism are what attracted them to IT. Outsourcing and offshoring only turbo-charge that dynamic and give all of us a chance to shape the future of our chosen profession.

Patrick Gray is the founder and president of Prevoyance Group and author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. Prevoyance Group provides strategy consulting services to Fortune 500 and 1000 companies. Patrick can be reached at patrick.gray@prevoyancegroup.com, and you can follow his blog at www.itbswatch.com.

About

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

30 comments
wjwood64
wjwood64

Unlike some of my counterparts I'm not that concerned about the offshoring, or even the H1Bs. What I AM concerned about is the very thing you mention in this post. The RAMPANT FRAUD in the entire IT marketspace around outsourcing and H1Bs. I don't mind competing with the genuine article. And frankly, I could care less if a business makes an EDUCATED decision with eyes wide open that they want to outsource. If they really understand the quality, AND the risks, and the issues involved and they are making the decision based on reality rather than sales hype, more power to 'em. Go get 'em tiger! On the other hand I am completely fed up with having paid my dues, keeping honest about my background, experience, and skills, and competing against outright FRAUDS!! You would be SHOCKED at how widespread it is: Protecting Yourself from SAP Consulting Fraud http://www.r3now.com/protecting-yourself-from-sap-consulting-fraud And as for outsourcing, I'm fine with it to a point, and as you mention I do believe it has a place. However that is another area that is BADLY abused. As Americans we truly believe we can compete on a level playing field but we are talking about competing with people who not only don't play by the rules, they are thieves, con artists, and ripoffs... Outsourcing has its place. And there are some legitimate areas where it works. However it needs to be carefully considered. Where Does SAP Offshore Development Make Sense? http://www.r3now.com/where-does-sap-offshore-development-make-sense How about a little research into the REAL underlying frustration people have. I know for me in the SAP arena I'm sick and tired of the fraud... And that's the nicest term I can come up with for it.

paul.simmons
paul.simmons

One of the undisputible issues of outsourcing is security. One may be giving the keys to the entity with no ablity to prosecute. They can be working with other agents, (industrial, criminal or state), to steal secrets or individual information. How often does this happen? Who knows. Is it possible? Very possible. What is the risk? Unknowable. Will you be aware of it if it happens? Probably not. My suggestion is to ask yourself if the outsourcers will be able to get access to information of potential interest to criminals, competitors, or governments and the possible harm that would come from that. Even Help Desk outsourcing can open up desktops and allow code to be put on a pc.

Marc Jellinek
Marc Jellinek

There's no doubt that offshoring or outsourcing reduces costs. There's a lot of doubt that the reduction in costs comes without a reduction in quality. This is not a slam on workers from outside of the US or Western Europe. There are occassions when there is no substitute for a face-to-face interaction. Let's take email: There is a very good, cost-based case for outsourcing email. Why invest in the storage, network infrastructure, backup, monitoring tools, utilities, servers and server software to host your own email infrastructure? There is even a case for improved quality, because it is assumed that an email outsourcer will have high quality technical resources and infrastructure on staff to manage the service. They will be 100% focused on providing quality email services. All of this works well when things are working well. Now when a customer experiences an issue that requires (from the customer's perspective) immediate resolution... they dial an 800# (if the outsourcer provides one) and you wait... and wait... and wait. Is that the same level of quality you can expect from in-house resources an infrastructure? For outsourced IT resources, the mantra is often "we have the best people". But the outsourcers themselves leverage outsource talent. More than once, I've posted a job with an outsourcer only to have the requisition show up on a job board word-for-word. There is no guarantee of quality. Speaking of job boards, my favorite are the outsourced firms advertising for "freshers" with no experience. The outsourcing firms will train them from the ground up, house them, provide them basic living arrangements and an H1B visa.... all in exchange for a term of service (usually 2 years). The companies with which I'm familiar will not hire US citizens... the company would have no hold on them. I may be fuzzy on my history, but isn't this "indentured servitude"? A friend in the recruiting business refers to this as "Green Card Slaves". I wonder how tongue-in-cheek this description really is? This would not be possible with American companies who would be bound by US discrimination law (age discrimination, discrimination based on country of origin) or US labor law. As much as I'd like to lay all of this at the feet of 'greedy corporations', I also have put some of the blame on 'greedy consumers'. What would an iPhone cost if it were manufactured in the US (with all of the attendant tax law, labor law and environmental law)? How much would a T-shirt cost ($9 at Walmart) if it were manufactured in a mill in New England? Consumers want high-quality, low cost goods (ie; wealth) at a low cost. If that means closing down a New England mill and buying cloth from somewhere else at a lower cost. (Sorry, had to answer the door, UPS just delivered my order from amazon.com)

michelinus
michelinus

You raise the point that 'everyone is realising that you get what you pay for'. False. Not all businesses realise this when it comes to IT and in particular when it comes to outsourcing. Some outsourcing companies are not telling prospective customers that they are a 'Timex', they are leading people to believe that they are a 'Rolex'. We know that outsourcing is greed driven; get the same service for less overhead, but in reality its get less service for less overhead initially and then ultimately its get less service for more overhead.

adamspivey
adamspivey

I work at a Help Desk, we have tried outsourcing our Help Desk 3 different times now and it has been a disaster all 3 times. To be honest, I don't feel threatened for my job, actual I wanted the outsourced people to suceed because it would have meant me moving on to a better job within the company. Since it has been a failure all three time, I'm still stuck at the Help Desk. I'm not one of these people who feel entitled to a job. If someone can do my job and is willing to do it for cheaper then fine take it from me. I don't fear competition. The problem with outsourcing is you typically get lousy service and that drop in service causes a drop in productivity. This loss in productivity is usually ignored by most companies because it never shows up as hard costs that can be easily accounted for. In the long run, outsourcing probably costs the company far more money, far more time, and a loss of respect in your entire IT department. Overpaying for someone may be bad, but the company is only out the difference in pay. When you underpay for someone, it is a complete loss.

Tony Hopkinson
Tony Hopkinson

the mass rebuttal of your previous ill-concieved article. Possibly unsurprising. Entry level jobs. The deficit. Of what benefit is it to to allow domestic corporations to make vast profits from this with no comensurate benefit to the country providing the business environment that supports it. Give me one , just one example of an offshoring initiative that wasn't driven by cost. Given it is cost based, what options are their for offshore service providers to make a profit? Reiterated would be nearer that revisited. Offshoring is individual greed, nothing else.

rick.sheeley
rick.sheeley

Who never had their job outsourced, or watched a factory in their home town shutdown and decimate the population. I'm happy you are a part of the greedy rich America. The America that got where it was be cause my grandfathers and others fought in unions so that we could have this place. This is what you wanted, as spitfire pointed out. We are your serfs now. But be careful Prince Patrick, when we come for the King, you're head will roll too..... I don't lament the old days, I lament the people of morals and character...... Rick in Sacramento, Ca

Repeal
Repeal

Since trade ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed against him must be battered down. Concessions obtained by financiers must be safeguarded by ministers of state, even if the sovereignty of unwilling nations be outraged in the process." Woodrow Wilson, President of the United States, 1907 But at what point must the electorate rise up and deny their loyalty and blood to a government that no longer places their interests first. Why should American soldiers defend International Corporations interests just because they claim to be American based?

Djdanrt
Djdanrt

You will find that what seems good on paper doesnt always work out in real life. Here are a few things that are ususally overlooked: Quality Candidates(offshore candadiates somtimes get coaching during the interview, I mean come on they are not in front of you, they are offshore), Language/dialect barrier; Say what? Could you please speak up slow down and repeat yourself!(We have all said this or something similar), Work hours; If they are working different hours from you then that means it generates all the problems that come with that(DST IST,Holidays, and off hour shift = often no oversight). VISAs; Almost all of the people offshore always want to come abroad and work onshore. Do we factor in sponsoring these people in the cost of them? Im sure that is often overlooked but travel expense and Visas add up.

Charles Bundy
Charles Bundy

is not that jobs shift as technology moves on, but that people themselves have become part of the cost cutting. Where mail room and street lighter jobs disappeared there was always a place to go for a hard worker willing to learn. That doesn't seem to be the case anymore. It doesn't seem like its enough to work hard and reinvent yourself in today's labor market. Thus my earlier comment concerning dehumanization as companies treat employees like cogs, rather than people.

gharlow
gharlow

I really don't have a problem with mindless coding tasks going offshore, but we are way past that point and to the point where Americans are not bothering with sciences and technology "because we do not do that here any more" It is often the little guy doing a factory or coding job that figures out a better way to do things and invents something that changes everything for everyone. We are losing that edge. IMO we are talking about the usual trip up for Wall Street where short term gains outweigh long term gains. Sure a company might benefit from cheaper labor today, but in 10 years chances are they are out of business and some other company is undercutting them with even cheaper labor somewhere else. I do sympathize with companies doing this because having a long term goal is nice but when you are being creamed in the short term what do you do. This is why we need regulation so everyone has an even playing field. For my part, I am lucky enough to be able to earn enough income without writing software any more and have time to write my own code for my own projects. I would like to see a lot more Americans going back to what really matters and getting out of the mindset of "getting a job"

Tony Hopkinson
Tony Hopkinson

There you are a provider of cheaper services, and you have to compete with other cheaper service providers. Hire cheaper people, I means that's the model, the default path, the obvious course, unless of course you want to eat into your profit margin. (Shock, horror, visceral distress etc)

Tony Hopkinson
Tony Hopkinson

So value for money wise as a timekeeping device, which is best A rolex A timex A circle of cardboard with 6:32 written on it..... Rolex is last isn't it....

MaSysAdmin
MaSysAdmin

I worked at General Electric Aircraft Engines when GE outsourced the main help desk from Compaq (located in Cincinnati) to India. Those of us working onsite used to be able to contact the Compaq help desk group and get parts shipped over to us within 1-2 hours. If a ticket got dropped into a wrong queue, we could get it over to the right group within a couple hours. Basically, it was rare to see a basic ticket linger for more than 24-48 hours. More complex tickets might take up to a week to solve. Two years after the switch to India, basic tickets could take MONTHS to get redirected to the right group. There were even a couple of tickets that had been lingering for over a year, because the server groups, that were now located in India, couldnt coordinate anything between themselves. In addition, anyone below the C-level had to call in their own tickets, and have someone try to fix their problem over then phone, not even with remote control. So a senior project manager, making well into the 6 figure range, rather than have someone come over and provide a simple fix, had to now have someone try to provide a fix over the phone. Whatever money GE saved, was VASTLY killed by the time wasted by this fiasco.

HypnoToad72
HypnoToad72

But I'm sure they'll still get 'corporate welfare' and bailouts too, when the time comes... paid for by taxpayers...

sissy sue
sissy sue

Thanks, Tony. I particularly liked "Of what benefit is it to to allow domestic corporations to make vast profits from this with no comensurate benefit to the country providing the business environment that supports it." I've heard more than one person remark that the West is on the decline, while the East, especially China and India, is ascending. The rise of the East is due, for the most part, to the wealthy in the West seeking to avoid paying their fellow citizens a wage that is commensurate with our Western lifestyle. The rich do not want their own lifestyle to decline; they want to add to their wealth at our expense. Patrick Gray uses the textile industry as an example, and says that "rarely do I encounter those lamenting all those 'good American jobs.'" This suggests that he doesn't get out much. Or, at least, it suggests that he doesn't get out much among "the peons" who complain that they can't find anything "American made" when shopping for clothing. What? Are we going naked now? Most of us would willingly "buy American," and most of us would be happy to have those jobs in this country, rather than in some 3rd World sweatshop. The rich want it both ways: They want their fabulous Western lifestyle, but they don't want to share their lifestyle with other Westerners. Instead, they would rather beggar us, sending their jobs abroad and then bringing the products home, making certain that we pay an inflated price for products that they purchased cheap but expect to sell dear. They don't mind that they are destroying their country in the meantime, in their greed to get as much as they can for giving less in return.

TonytheTiger
TonytheTiger

as anything other than "service areas" is the flaw. Human mindsets advance. Government mindsets advance... more slowly.

HypnoToad72
HypnoToad72

http://hubpages.com/hub/HowH1BVisaFRAUDiskillingAmerica http://www.rawstory.com/rs/2011/04/13/general-motors-ceo-urged-to-address-indian-workers-complaints/ http://www.nbclosangeles.com/blogs/press-here/Foxconn-Forces-Employees-to-Sign-No-Suicide-Pact-121396179.html And we wonder why the people in these countries, who are said to do things "better", don't? (Many people have had nothing but problems with quality and other issues, and I wonder if these workers are engaging in passive-aggressive tactics.

HypnoToad72
HypnoToad72

And it's appalling. So are the conditions many workers in the countries the work is going to...

Spitfire_Sysop
Spitfire_Sysop

When he said we are not entitled to tech jobs. Ok, so we don't have manufacturing jobs anymore, we don't have tech jobs. Farms are automated. Construction is slowing. The federal jobs are going away with all of the cost cutting. Engineering and design were big for a while but those jobs may start to go to cheaper labor too. What is left? What is this new America that people keep talking about? It looks like serfdom.

bboyd
bboyd

I agree. The workers make the best improvements and know the job at the best level. People cost improvement their companies out the the market as often as not trying to outsource. I'd say one thing of those outsourced jobs. If you take the time to automate and understand the tasks, eliminating the wastes, you will keep the jobs and the income here.

Tony Hopkinson
Tony Hopkinson

offshoring to their logical conclusion, and there won't be anyone worth taxing..... I mean look at us now, it's our grandchildren who are going to pay for 'our' bailout and 'our' welfare.... Entire western world is in debt, mainly to itself.... You want to watch them go pale, tell them we should just say f**k it and write it all off. After all they are only wealthy through money. It's not very effective at keeping you warm and you can't eat it. We should go back to a barter economy, then when they roll up with a big binary number, some cheap metal or paper that's already been written on , we could may be let them have a cabbage for it, or a couple of carrots...

Tony Hopkinson
Tony Hopkinson

I'd be surprised if that are many that remember we did have one once....

HypnoToad72
HypnoToad72

Especially that last paragraph. And yet they try to pawn it off as "competition", "need to be competitive", etc. (it's easy to compete with low quality, but when the costs to get the knowledge to be competitive can never be paid off, I hope the students aren't scapegoated...)

Tony Hopkinson
Tony Hopkinson

"sound business thinking" Sound as in the common of common sense...

Marc Jellinek
Marc Jellinek

Hmm.. how sound is it that Ford and Dell have not only lost a customer, but now have someone willing to speak in public that they won't buy their products? It's takes 10 "atta-boys" to overcome one "aw sh*t". Think the managers and executives who were behind Dell's decision to not acknowledge their quality issues with their OptiPlex computers are still with the company? Kevin Rollins took a dive. I wonder how many middle managers also were forced out? Think Nichicon (the company who made the capacitors at the root of the issue) are getting more business from Dell, Intel, HP and other PC makers? How many major customers (like Wells Fargo and Walmart) will no longer buy Dell, or who demanded replacements for their OptiPlex computers? How much was the "undisclosed" settlement in the lawsuit brought by Advanced Internet Technologies? The one piece of public information I could find was that Dell took a US$300 Million charge to cover (at least in part) the cost of fixing or replacing the affected computers in 2005. Based on 2005 net income of $3,043M, that's 10% of their net income for the year. Ah, the joys of "sound business thinking" Questions that didn't make the balance sheet: How much did Dell lose from customers who will not longer buy or recommend their products? How much does Dell lose from customers who are unsatisifed with their outsourced support?

Tony Hopkinson
Tony Hopkinson

But that's later. That's after the promotion, share option, bonus, pay rise etc... Buy again is something 'you' think about after they won't or after 'you' realise it's likely they may not. Thinking about it before hand might mean you spend money on some sort of vague guess, that won't get you the afore mentioned benefits.... Got to stop thinking like a propeller head mate, sound business thinking is what you need to get on! :( :(

Marc Jellinek
Marc Jellinek

There may be "good enough" to get the sale and "not good enough" to buy again. Examples: I drove Ford cars in the past (a Mercury Cougar and Ford Explorer). Yes, they were good enough to buy. But when the transmissions in both cars needed to be replaced after 150,000 miles, I switched to Hondas. My first Honda was a Civic which I drove for 9 years. I did zero maintenance outside of the schedule and when I got tired of it (I sold it to a friends son with a clear conscience), I bought an Acura. Whatever profits Ford made on the Cougar and Explorer are likely to be the last they make from me. Honda will have my business as long as I'm happy with their product. I used to be a huge fan of Dell computers. After their history of outsourcing support to people without a command of the English language and knowingly selling defective computers, I will not buy another. Ford and Dell, once great companies, both in decline, gained short-term profits but lost a long term customer.

Tony Hopkinson
Tony Hopkinson

what business is looking for is good enough. So it's not crap vs high quality, it's good enough versus not good enough. Now you and I might look at product or service and because of our knowledge set deem it not nearly good enough, or at least could be better, a business head will simply ask can I sell it at a profit. If they can, by their definition it's not crap.

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