Outsourcing, Offshoring and 'Shifting' Jobs vs. Losing Them


Back in May, I interviewed The Hackett Group's Honorio Padron and Erik Dorr about the growing gap between demand for IT services and available IT resources. Though this gap is a longstanding one in most organizations, it's likely to get even worse in the current environment, with increased pressure to lower costs.


I spied a recent ITWorld item in which author Dan Blacharski touches on some of the same points, with a big one being that across-the-board budget cuts with no accompanying attention paid to rationalization or process improvement could be a real disaster. Padron called this kind of strategy (and I use the term loosely here) "unsustainable" during our interview. And Dorr said:

... If you are already a fairly well-run and efficient operation and you take something out, then clearly it is going to impact your ability to deliver services. And that is not just people. If you decide to postpone an upgrade cycle of a piece of hardware, it may come back to bite you if that hardware goes down. You may try to save some money on software maintenance in the short term and end up paying for it later. A discretionary cut without a fundamental change is going to hurt your ability to deliver service down the road.

Blacharski also hits on a point Dorr and Padron made in our interview, that outsourcing presents the biggest opportunity for cost savings, largely because when organizations outsource, they tend to tackle a larger chunk of their overall IT activity. Explained Dorr:

Let's say you renegotiate your telecoms contract and you get 10 percent (savings). That's beautiful, but if that 10 percent represents 5 percent of your spend, the overall budget impact is half a percent. If you take your entire applications maintenance activity and outsource it or offshore it and get 10 percent (savings), that's typically a much greater portion of your overall budget, so the impact will be higher.

Blacharski makes a good point, noting that if functions are outsourced but not sent offshore, it's "really more of a job shift, than a net job loss," resulting in increased work for services companies and consultants. He suggests folks looking for IT jobs should consider looking for work with companies that service larger organizations rather than with the big companies themselves. It'd be especially smart to hone your skills in areas where there is growing demand, according to The Hackett Group research, including process transformation, regulatory compliance and merger-and-acquisition related activity. (IT Business Edge blogger Loraine Lawson recently make a case for master data management's ability to reduce M&A costs.)


If folks are comfortable adding politics to the outsourcing equation (and maybe they will be, with the current state of the U.S. economy), I agree with Blacharski. Yet lots of companies will want more bang for their outsourcing buck, and in many cases that'll mean sending work offshore. And companies can't assume that working with an American company like IBM, EDS or ACS will mean U.S. jobs are protected, not with those companies (and plenty of others) sending more of their jobs offshore.


Companies could certainly add a requirement for a certain percentage of U.S. workers to their outsourcing agreements, but that'd be a big switch from the "don't ask, don't tell" attitude most companies have taken to date. I agreed with other observers trying to rectify the wildly disparate numbers in a couple of surveys about offshoring administered last spring: Lots of executives probably had no idea (and didn't care to know) how much of their outsourced work was performed by offshore employees. But should they?