I think this is pretty close, actually.
Remember, as stylin points out, we charge our customers by the hour.
Posted on 08/13/2003 8:20:37 PM PDT by thimios
U.S. Offshore Outsourcing Leads to Structural Changes and Big Impact Gartner
By Diane Morello Vice President & Research Director
As offshore outsourcing ramps up, the dislocation of IT jobs in the United States is becoming real. CIOs must anticipate the potential loss of talent, knowledge and performance.
Many Ramifications With an Outsourcing Decision
In the first half of 2003, the application development manager of a well-known company was frantic. Her staff was near mutiny. A day earlier, the CIO had called an "all hands" meeting and announced that he could save the company $30 million during the next few years. How did he propose to do that? By moving application development offshore to outsourcing vendors. The application developers in the room were stunned. Immediately, they crowded into the office of their manager, all asking similar questions: What does this mean for me? Is my job safe? Will I become unemployed?
That scene is occurring in company after company around the United States, from midsize to large companies, with each decision affecting between 150 and 1,000 people. The movement of IT-related work from the United States and other developed countries to vendors and offshore sites in emerging markets is an irreversible mega trend. Although the United States may feel the biggest effect from this movement, other developed economies, including Australia and the United Kingdom, feel disoriented, too.
The workforce changes that accompany the trend toward offshore delivery - whether offshore outsourcing or offshore insourcing - are structural in nature, not fleeting or temporal. The effect of IT offshore outsourcing on the United States is a harbinger of changes in other countries that pursue global sourcing models. The workforce and labor-market consequences will be substantial.
Three CIO Issues
Three overarching issues shape CIOs' obligations around offshore outsourcing:
As long as new investment in IT remains low in North America and Western Europe, IT offshore outsourcing will yield a displacement of IT professionals and IT-related jobs. CIOs who make ill-informed decisions today will be unable to find or acquire the requisite local knowledge and competencies when IT investment resumes.
Few enterprises would deliberately choose to cede intellectual assets to offshore outsourcing vendors, but some executives fail to envision today which skills, knowledge or processes will generate business innovation tomorrow. Vision, leadership and an understanding of how technology fuels competitive advantage will help CIOs and business counterparts retain core knowledge.
CIOs and other business leaders must be clear about their plans, timing and transition phases for the offshore outsourcing transition. They must develop milestones, timelines and accountability. Moreover, they must communicate honestly and respectfully to keep performance high and defuse employee anger.
Not a Pretty Picture for the IT Workforce
Since 2001, according to the U.S. Bureau of Labor Statistics, more than 500,000 people in IT professions in the United States have lost their jobs. Some were caught in the dot-com bust. Others were laid off by cost cuts, shrinking budgets, a poor economy and a desire to satisfy shareholders quarter by quarter. Now, a growing number of IT professionals and practitioners are having their jobs displaced as IT work moves to offshore venues.
Without a "shot of adrenaline" to the U.S. IT profession - such as an investment boom, a "white knight" industry, new IT-led innovation or new ways of competing globally - the scenario for the IT workforce in the United States and other developed nations looks bleak.
Large U.S. enterprises, vendors and service providers aggressively are investigating or pursuing offshore markets for IT delivery. Combining that interest with minimal new investment, preliminary Gartner analysis - based on the IT Association of America's count of 10.3 million IT practitioners in the United States in 2003 - indicates that another 500,000 IT jobs plausibly may disappear by year-end 2004.
By year-end 2004, one out of every 10 jobs within U.S.-based IT vendors and IT service providers will move to emerging markets, as will one out of every 20 IT jobs within user enterprises (0.8 probability).
Through 2005, fewer than 40 percent of people whose jobs are moved to emerging markets will be re-deployed by their current employers (0.8 probability).
Likely Implications of IT Offshoring
To many CIOs and business executives, the decision to outsource activities offshore is fiscally sound:
The cost, quality, value and process advantages are well proven.
Moreover, at a time when IS organizations are struggling with poor credibility and IT is being scrutinized, offshore outsourcing is becoming a tool for improving service delivery and a source of highly qualified talent in greater numbers.
Finally, the extensive use of quality methodologies among offshore vendors - such as Software Capability Maturity Model (CMM), People CMM and ISO 9000 - enables a degree of assurance that many in-house organizations lack.
Gartner urges CIOs and other business executives not to trivialize the impact of offshore outsourcing on their business strategies, their organizations or their employees. Three areas of concern arise:
Loss of future talent;
Loss of intellectual assets;
Loss of organizational performance.
Loss of Future Talent
Many IT applications and services that are being considered for movement offshore are now run and maintained by seasoned IT professionals in user companies, technology vendors and IT service providers. Offshore movement of that technical work implies a significant displacement of IT professionals who possess organizational memory around IT investments. At the same time, college students in the United States, the United Kingdom and other developed countries see technical work moving to emerging markets, and see family and friends losing technical jobs. Interest in pursuing technical careers will wane.
Why should CIOs care? Because they cannot afford to have domestic IT talent "dry up." When investment resumes and the economy rebounds, CIOs will need a cadre of seasoned IT professionals and eager recruits to "turbocharge" new ideas, new investments and new programs.
Loss of Intellectual Assets
CIOs and enterprise executives must ask: If everything can theoretically be outsourced, what kind of knowledge must we retain or develop? At Gartner's Outsourcing Summit in Los Angeles in June 2003, 39 percent of attendees at the session "Managing Workforce-Related Risk in Outsourcing" cited the loss of critical knowledge as the greatest source of workforce-related risk around outsourcing. Identifying, capturing and measuring core enterprise knowledge is daunting, especially when critical knowledge is often subordinate to technical skill sets.
For now, most enterprises send straightforward technical activities and routine business processes offshore, but the ease with which they can move those activities may numb decision-makers to the need to maintain and protect essential knowledge/
Six areas of core knowledge that are worth protecting include:
Enterprise Knowledge: How do our products, services and systems blend together?
Cultural Knowledge: How do we do things here? What are our beliefs? Who really makes decisions?
Social Network Knowledge: Which roles and which people form critical connective tissue?
Strategic Knowledge: What are our objectives and competitive advantages?
Industry and Process Knowledge: How do our industry, competitors, and customers operate?
Activity Knowledge: Do we know which people are doing what today?
Loss of Organizational Performance
Offshore outsourcing weakens the already-fragile relationships between employees and employers. Whether CIOs are considering, investigating or actively pursuing offshore outsourcing, they should prepare for a bumpy ride. Beneath the sound business reasons for outsourcing lie thornier issues associated with people.
Decisions to outsource - whether offshore or domestic - bring upheaval to IS organizational competencies, roles and makeup. More than 40 percent of attendees at the workforce-related risk presentation at Gartner's Outsourcing Summit considered their organizations to be ill-prepared for the new roles, competencies and skills that accompany an outsourcing delivery model.
Are Enterprises Prepared for Outsourcing? Not Really
The situation worsens with offshore outsourcing, because fewer than 40 percent of the people affected will be re-deployed. During the offshore transition, the degree of uncertainty is so high that it can severely disrupt organizational performance. CIOs and other business executives should hold themselves accountable for sustaining and improving organizational performance levels during the transition. To do so, they should coordinate along several lines:
Identify competencies, roles, people and knowledge that will be retained. To prevent organizational paralysis, CIOs must define the future role and shape of their IS organizations as certain day-to-day activities move overseas. Gartner research reveals that many enterprises retain such critical functions as application design, application integration, client-facing process management, enterprise architecture, information management and high-investment competency centers. In addition, they develop new competencies in service management, vendor relationship management, process management and business integration.
Create a meaningful transition plan. Provide clear timelines and milestones to help people prepare for the changes that offshore outsourcing brings (for example, Milestone A will be reached in six months, Milestone B six months later and Milestone C 12 months after that). At each milestone, certain segments of work or applications will complete their offshore transfer, and the affected people will be terminated or re-deployed. Companies that have a lasting commitment to their people will generally spend time arranging redeployment of their affected employees.
Outline employees' options. Define the options available for affected employees: re-skilling, re-deployment, termination or outplacement. The way in which enterprises deal with employees during the offshore transition will be a lasting testament to the perception of leadership and the reputation of the company as an employer. Executives must hold themselves accountable for communicating clearly, quickly and meaningfully. "I don't know" is an unacceptable answer when the organization's performance and people's livelihood are at stake.
Bottom Line
CIOs and business leaders in the United States and other developed countries should move carefully as they pursue offshore outsourcing.
Until IT investment resumes, IT offshore outsourcing will yield a displacement of IT professionals and IT-related jobs.
CIOs who make ill-informed decisions will be unable to find or develop qualified talent when they need it.
Additionally, CIOs and other business leaders must be clear about envisioning what knowledge, roles, people and skills will fuel competitive advantage in the future - otherwise, they risk losing core knowledge.
Finally, CIOs must communicate clearly, honestly and respectfully about the transition plan, and about the options available to affected employees.
I've an interesting update on this story -- today was judgement day for Satyam. Because of this out-of-control project, we are cancelling our contract with them.
And the VP in question's solution for this project?
He's hired another Indian subcontractor, and is going to start the project all over again, with them.
Failure didn't teach him one single thing.
But it's a step. They've finally admitted that bunch of Indians failed. It's one first step.
He's hired another Indian subcontractor, and is going to start the project all over again, with them. Failure didn't teach him one single thing.
But it's a step. They've finally admitted that bunch of Indians failed. It's one first step.
WOW. Fascinating tale. The inability to recognize reality speaks of faddish allegiance more than anything. This further tells me that this is the New Buzz Idea, the Paradigm Du Jour.
We're gonna be okay, Dominic.
He's hired another Indian subcontractor, and is going to start the project all over again, with them. Failure didn't teach him one single thing.
Now clearly a high school kid making mimimum wage could do a better job than the VP in question and most certainly would not do worse.
But it's a step. They've finally admitted that bunch of Indians failed. It's one first step.
True
This really should be sent to the creator of Dilbert. The VP in quewstion is a clear case of the Peter Priciple in action. Now a way for the company to save money overall would be replace teh VP in question with a high school kid (hey be really generous give him minimum wage plus a 100% premium he/she is after all a VP.) Take the savings and fund a project that will get the job done and done right.
Please do not ever consider suicide again there are way too many people who need killing as it is and to few good peopel.
Us men identify heavily with our work, and when we're found to be worthless time and time again, it bothers us.
Hang in there it sounds very rough.
Per research I've done with H1B, it's quite likely that several of my potiential jobs have been shipped to India.
Per research I can tell you there are close to 100,000 unemplotyed IT people out there. You are not alone. I would suggest you find a networking group of other unemployed IT peopel where one can share tips and get some additional pointers on honing your presentation for when teh jobs come back. Alternatively practice combat skill because if teh jobs do not start coming back there will be violence in the USA the likes of which have not been seen since the 1860's anbd maybe not even then.
To other readers this is not a threat merely an informed observation.
Better than okay, I think.
I'm encouraged because I'm starting to see real, new development on actual software products. I think the real 'internet' boom is yet to come. Compare this 'internet' we play on to what it was just 10 years ago. Now, imagine just 10 years from *now*. We're certainly close to full video, sound, video-game level graphix, and a level of interactivity we literally can't even imagine yet.
I think there's a lesson in what happened with radio. I think people here could take comfort in that story.
Way back when, pre-1929, radio was the 'hot new tech'. Shares of RCA went thru the roof, from $5 soaring to over $500. Then the market crashed. The shares of RCA didn't reach pre-crash highs again until the late 50s. But radio is now bigger, and more amazing, than any of them could ever have imagined.
Software is the same. This 'internet' thingy is what radio was.
There is a massive revolution in the offing here. I can think of literally dozens of amazing software products that are certain to become every bit as much parts of people's daily lives as google, ebay, America Online/MSN/etc, Amazon.com, and on, and on.
This outsourcing thing is just a fad.
American programmers can compete with anyone. Now granted, a lot of good programmers are being put out of work by Dilbert pointy-haired bosses. But what goes around *will* come around. The industry is just streaky. We just went thru a huge boom, then a bust.
And I believe the best is yet to come.
Yes, life is good.
I think this is pretty close, actually.
Remember, as stylin points out, we charge our customers by the hour.
We charge our customers $115/hr and up, and pay the Indian ~$20/hr.
And we can bill *more* hours, because they take longer.
The VP, CFO and CEO know exactly what they are doing, don't they?
It's got to be the oldest contractor's trick in the book: bid the contract low to get the job, then milk that revenue stream for all it's worth as long as you can. We do it to our customers, and now the Indians are doing it to us.
Ironic, eh?
I said, "If an Indian developer is worth $20/hr to you, then if I can produce 5 times what that person can aren't I worth $100/hr?"
I got the, 'you just don't get it', smile.
That wasn't the 'you just don't get it' smile. That was the 'this guy gets it but I'm clueless' smile.
What would you call it? Perhaps the "Unemployed Programmers Union". About the only thing you could strike is a match. Zero leverage.
The capital that is flowing to India is employing electricians and plumbers in India where the new construction is underway to house all the new employees. The electrician and plumbing jobs are outsourced too. There will still be maintenance work for those vocations in the U.S., but not lots of new construction. The quantity of abandoned, premium office space in the U.S. is astonishing.
In Pocatello, Idaho, we have lost most of the white collar and blue collar jobs. What remains is farmers, retail stores, restaurants, doctors, lawyers, a university and lots of government employees (city, county, state). AMI Semiconductor is the last large employer that contributes any sizeable payroll to the community. There is a limited amount of traffic left from Union Pacific railroad.
I work from my home office. My boss is in Beavercreek, Ohio. He suggested that he might close the physical office in Beavercreek soon and have all the staff work from home offices. That would enable us to drop our loaded rates into the $50 to $75 per hour range to be more competitive. The folks in San Diego are running at rates of $150/hour and they can't close any deals. They are simply too expensive to be competitive. Their San Diego real estate costs, utilities, taxes, disability insurance, etc are burdens that my work group can dodge.
I can offer one suggestion for a vocation that won't be sent offshore. Road maintenance in states where it snows. As long as cold winter weather destroys the roads, there will be a market to clean up behind the destructive efforts of mother nature. Police and fire jobs may also be suitable, but they are hard to get.
After visiting Yellowstone last Sunday, I can see a great opportunity for harvesting dead trees and selling the wood. It's work that needs to be done to clear the massive amounts of fuel from the forest areas. If only we could get rid of the stupid influence of the green commies. That wood is still suitable to burn for fuel and possibly still good enough for paper pulp. It is unsatisfactory for traditional lumber use.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.