Strategic CIO // IT Strategy
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8/2/2012
03:07 PM
Rob Preston
Rob Preston
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Sorry, But Outsourcing Isn't Evil

Outsourcing remains pervasive in both the public and private sectors, and it's not going away, despite the widespread backlash.

Outsourcing is the polarizing IT management issue of our time. Few if any IT practices are so widely embraced at the highest corporate levels, yet so widely derided by the rank and file, especially when the work that's outsourced is moved offshore.

On the message boards, outsourcing is blamed for everything from Dreamliner delays at Boeing to the second-quarter loss at Microsoft (despite the fact that a one-time, $6.2 billion financial write-down was the real cause). Outsourcing providers and customers are portrayed as miscreants and dolts.

One critic, commenting on an InformationWeek column Allstate CIO Jim Ditmore wrote about his negative experiences with outsourcing earlier in his career, surmised: "Would it be correct for me to guess that a non-technical CIO and other ignorant CXOs made the decision to outsource? Were the screams of protest by knowledgeable 'IT people' (a.k.a. the drones) ignored because they were supposedly interested only in saving their own jobs? Can the sales process for the outsourcing deal be described as 'people who don't know what they're selling telling lies to people who don't know what they're buying?'"

Outsourcing's also a political livewire. Even though the federal government outsources much of its work, IT and otherwise, to all manner of contractors, consultants, integrators, and other vendors--and some of that work makes its way offshore--the Obama administration talks about outsourcing as if it were worthy of an Un-American Activities investigation. The Romney campaign can't backpedal fast enough from any suggestion that the former executive engaged in the practice when he was governor of Massachusetts and CEO of Bain. Likewise, many executives still keep their companies' large outsourcing contracts close to the vest, for fear of a public relations backlash. I've talked with plenty of CIOs who rave in private about their offshore vendors--but take the Fifth in public.

[ Learn why Obama's Attack On Outsourcing Rings Hypocritical. ]

The fact of the matter is, outsourcing remains pervasive in both the public and private sectors, and it's not going away, despite the social and political blowback. For example, 82% of the 564 business technology professionals who responded to our recent 2012 State Of IT Outsourcing survey said their companies use such services, up slightly from 81% a year ago. Among those that outsource, more than half (59%) use offshore providers to some degree. And 31% said the composition of their IT workforces will shift more toward outsourcers in the next year, while only 15% said it will shift away (54% said the mix will remain about the same). My colleague Paul McDougall will dive deeper into those survey results, including the perspectives of customers, suppliers, and other industry players, in an upcoming InformationWeek feature story.

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There are exceptions to the trend, of course. New General Motors CIO Randy Mott made national headlines last month after InformationWeek reported that he plans to reverse the automaker's historical reliance on IT outsourcing--from a mix of 90% outsourced and 10% in-house staff to 10% outsourced and 90% in-house—in an attempt to execute projects faster and cultivate auto technology expertise internally. GM's plan to hire thousands of people for four new software development centers in the United States, rather than locate one or two of them abroad (like in China, its fastest-growing market), probably is based in some measure on the fact that the company owes its existence to the $50 billion bailout funded by American taxpayers.

Allstate's Ditmore warns CIOs about handing off their critical intellectual property, much of it IT-related, to outsourcers. And don't count on IT outsourcers to cut costs, he said. "While most small and midsized companies don't have the scale to achieve cost parity with a large outsourcer," Ditmore says, "nearly all large companies and many midsized ones do have that scale." He argues for doing only small outsourcing deals, for which it's easier to establish SLAs and measure performance.

If so many leaders are so leery of outsourcing, why do so many organizations continue to do it? Because when these contracts and relationships are properly thought out, vetted, and managed, they can deliver strong results--especially when they're tied to strategic business outcomes and not just brute cost savings. Outsourcers can bring hard-to-find expertise and fresh ways of thinking to some of the most pressing business technology challenges.

Outsourcing isn't a panacea for dysfunctional IT operations and management. But it's not the devil some of its detractors make it out to be.

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MALLEN432
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MALLEN432,
User Rank: Apprentice
9/9/2012 | 10:24:56 PM
re: Sorry, But Outsourcing Isn't Evil
The real issues as I see them are actually quite clear. 1. Regardless of any quaint ideas of ethics or proper politics, labor will move to where it is performed at the least overall cost - to include the shipments of raw materials and finished goods. 2. The era of national borders as it relates to commerce are quickly coming to a close.
With these two thoughts in place I would point out to those who see the issues as involving class to wake up and look around. It certainly does involve management, if line-labor jobs are outsourced to another nation someone is supervising the effort and managing the effort, it is only directed from the US. Also, I would point out that if our national leades had handled the bankruptcy of GM and that of Chrysler properly there would certainly be foreign ownership and management of those firms - a lot of the managers of those companies would not be there. I would argue that it their direct failure to match the market demands, leading to their lack of profitability, that they, in fact, should absolutely not be there now.
When you really come down to the full realization of the purpose of a business it exists to do one thing - and one thing only. That purpose is to provide income for those who own the company. It does not exist to provide jobs or careers for company management. The company exists for those who own it. Capital for machines and technology, for hiring and salaries, is the cost of doing business - absolutely not its purpose.
Those of us who do not own a company, perhaps even do not own stock shares in one, must be aware of the dynamic. It is wonderful that companies treat us well and with humanity, it is also wonderful if they pay us fair wages and benefits for the effort we bring. The reality is that 'loyalty' does not figure anywhere in this paradigm. Just as the company will not think too hard on letting me go if my efforts are not a good fit, I should not think too hard on leaving if I can fit better with another employer.

All of the above said: If you want to end outsourcing we need to jump headfirst into the deep end and embrace technology to accomplish the results we want at the least cost. We must be better as individual producers within the companies we work for.
PJS880
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PJS880,
User Rank: Apprentice
9/6/2012 | 5:50:13 PM
re: Sorry, But Outsourcing Isn't Evil
That is exactly what I think and if faced with the same decisions today, oh wait they were and which way did they go??? Obviously people who have nothing to do with your organization will not care about it as much as the people directly involved with your organization. That being said companies donGÇÖt outsource because they believe that outsourcing companies care more about the success of your company than your employees. They do it for the almighty dollar..period!
Paul Sprague
InformationWeek Contributor
PJS880
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PJS880,
User Rank: Apprentice
9/6/2012 | 5:45:15 PM
re: Sorry, But Outsourcing Isn't Evil
@ Chuck I comment on my personal opinion, that being said....it is literally impossible for you to go through your daily routine without interacting as a customer or company who uses outsourcing in one way or the other. The facts speak for themselves Chuck, In a study conducted (The telephone survey of 100 chief financial officers at U.S. technology companies with annual revenue of $100 million to $15 billion, conducted by accounting and consulting firm BDO Seidman LLP, also found that nearly half (49%) of those business offshore some manufacturing or services outside the U.S. ) I am sure that half of our country is switching to outsourcing because the quality of product, or service is not as equal! I am glad to hear that the colleague you have worked with have worked out greta here in this country, and sorry you did not have success where millions of other have. Source? For what outsourcing...here is one, Coca Cola....because there quality has gone nothing but down hill since they started outsourcing!
I take it you do not own and operate a business within the US? I am not saying that all outsourcing is better quality, I am saying if you are a business owner you would see the viable way to conduct your business. Companies do not choose outsourcing as a way to tell its customers hey we care about you and your community along with unemployment an day other community problems. Companies choose to outsource for one reason, money. Even more if the quality of whatever that company produces is not affected. Now stick up for yourself.

Paul Sprague
InformationWeek Contributor
Works Cited:
http://www.informationweek.com...
jries921
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jries921,
User Rank: Ninja
9/5/2012 | 6:59:35 PM
re: Sorry, But Outsourcing Isn't Evil
While I think I understand your position and you explain it well, the fact remains that regular employees have a lot more interest in the future success of the firm that outside contractors can afford to (their jobs depend on it). It's also the case, that while speculators may applaud gratuitous layoffs in the endless quest for cheaper labor and higher (short term) profits, the cost is that employees have little or no incentive to be loyal to company, and every incentive to bolt if someone offers them a better deal.

Loyalty up never exceeds loyalty down. It never has and never will.
jries921
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jries921,
User Rank: Ninja
9/5/2012 | 6:34:49 PM
re: Sorry, But Outsourcing Isn't Evil
It's called "patronage"; the idea being to steer as much money as possible to supporters of the "good guy party", so they have a stronger motivation to support it (and a disincentive to support the "bad guy party"). There was a Democratic politician in the 1860s and 70s New York City who made this a high art form, but went to jail when he overreached. I'm sure you've heard of him: William M. "Boss" Tweed. He apparently had standards though: the courthouse his henchmen so ridiculously overcharged for is still in use as a government building 130 years later.
jries921
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jries921,
User Rank: Ninja
9/5/2012 | 6:25:25 PM
re: Sorry, But Outsourcing Isn't Evil
The thing is, that management jobs are not the one's that are outsourced or offshored, though I'm sure that he'd tell us (honestly) that if his boss thinks he can replace him with an Indian working out of Bombay; more power to him. Never mind that due to immigration restrictions, people aren't free to follow the jobs from country to country, nor do offshorers really want them to (ie. it's not really a free market).

It is telling that the mania for cheap labor never seems to extend to executive jobs.
twiddler99
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twiddler99,
User Rank: Apprentice
9/4/2012 | 6:59:06 PM
re: Sorry, But Outsourcing Isn't Evil
As others have observed, Rob's article doesn't make a sufficient distinction between outsourcing and offshoring. Outsourcing is simply an enterprise's decision to contract some particular expertise instead of maintaining that expertise in-house. Offshoring, on the other hand, robs jobs from U.S. workers, and outsourced offshoring is essentially treasonous. It's exporting jobs from the U.S. when high domestic unemployment is dragging the country down economically. So "sorry" Rob, but echoing the entitled attitude of the corporate elite, and quoting statistics on the ubiquity of offshoring does not make the practice ethical. It is unpatriotic.
braya
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braya,
User Rank: Apprentice
9/4/2012 | 5:45:25 PM
re: Sorry, But Outsourcing Isn't Evil
The real evil is uncompetitiveness and unadaptability. What is the percentage of Americans who received real formal college education in I.T.? I'd bet the numbers is definitely lesser than the demand. Majority of Americans should get real solid education and experience before the few would bitch and whine about it. Unfortunately, the current American I.T. pros in the industry became collateral damage to outsourcing. Why not move up to management or executive level? That department is as competitive too? excuses, alibis, blah-blah-blah..

Outsourcing makes perfect business sense. It is an irrefutable fact that globalization is here to stay however we bitch about it in Capitol Hill, ironically, it is us Americans who started it. The sooner we swallow our egos, the sooner we are better off.

..or quit the industry before you put a gun to your head.
iosax
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iosax,
User Rank: Apprentice
9/4/2012 | 1:49:19 PM
re: Sorry, But Outsourcing Isn't Evil
Outsourcing offshore is here to stay because our so called democracy is just a superstition. The same people doing the outsourcing are the ones paying for political "reelections" in a vicious circle of bribes and favors. And it's not evil only until your own job gets outsourced, which in the case of a technical magazine is not really that hard, since all indians speak English. We should force the government to publish the number of jobs created off-shore along with the number of jobs created in the US by american companies, they'll never do it willingly, for obvious reasons
ssamuelson061
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ssamuelson061,
User Rank: Apprentice
9/4/2012 | 12:54:56 PM
re: Sorry, But Outsourcing Isn't Evil
And I'm sure Rob will agree when the Off-Shore his editorial job to someone who speaks English "good enough". Although there will be grammatical errors, statements of non-fact, and misspellings in most of the articles, it's accepted in today's culture so it's a cost I'm sure his bosses will be willing to write off when they see the savings to the bottom line by paying their editor 10%-20% of his current salary. Even though Congress will find it offensive and put together a "program" designed to stop the undercutting of his profession's salaries by foriegn workers, the "program" will have no teeth and companies will openly flaunt it. If "good enough" works (doubtful), InformationWeek will survive. If your customers want quality (most likely), the upper management will say "Wow - who would have thought quality was that important? We need to lay off more Americans to cover my mistake and keep my salary inflated. Let's also implement a quality program to fix my mistake. We can off-shore that work to some other foriegn nation and hire a translator. What could possibly go wrong?"
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