When, 18 months ago, bank of America Corp. moved to outsource IT support for human resources and other internal functions, Tom (not his real name), a Bank of America programmer, thought it might not be such a bad deal. Not only would the IT veteran get a severance package from the bank, but hed also get a job with the outsourcer, Exult Inc., in office space the Irvine, Calif., company had leased in the same Charlotte, N.C., Bank of America building where he was working. Same salary in the mid-60s. Same colleagues. It beat unemployment.
A year later, however, the deal turned sour. Tom is now being required to help train a group of 30 Indian programmers. HR support is to be shipped offshore to two Indian companies, HCL Technologies America Inc. and Hexaware Technologies Inc. At the end of this month, once training is completed, Tom will join a total of 70 former Bank of America IT support staff who will have lost their jobs to offshore outsourcing.
Many observers expected world events—including post-Sept. 11 nationalism and a recession-induced glut of IT skills on the domestic job market—to stem the flow of IT jobs to offshore outsourcers. They havent. If anything, the exportation of IT jobs from the United States to places such as India and the Philippines seems to be increasing. Gartner Inc. has projected that, by 2005, 30 percent of all Global 2000 enterprises will be embracing the offshore or nearshore—namely, Canada or Mexico—IT outsourcing model. While the United States is still home to about half of all IT workers, the size of the IT work force outside of this country is growing at about double the rate—20 percent per year—of that in this country, according to Howard Rubin, a research fellow at Meta Group Inc.
Fueling much of that momentum has been the offshore expansion of large, U.S.-based IT service providers. Electronic Data Systems Corp., for example, last year hired 6,000 offshore workers at a time when, according to a recent report by the Information Technology Association of America, the IT work force in the United States shrank by 5 percent due to layoffs.
Whats behind the acceleration in offshore outsourcing is obvious: An unprecedented impulse by enterprises to slash IT costs. Metas Rubin calls it the “El Nino of IT.” For the first time in technology history, said Rubin, theres both pressure on IT spending to shrink as a percent of revenue, and absolute dollar spending on IT has dropped.
Its easy to see why offshore outsourcing makes U.S. businesses feel like kids in a candy store. Hourly labor costs run $25 to $40 for Indian technology workers, compared with $150 to $200 for U.S. contractors. Gartners rule of thumb is that enterprises cut between 25 percent and 40 percent from project costs when using the offshore model.
Its not surprising, then, that enterprises such as consumer electronics retailer RadioShack Corp. have been gradually increasing their use of offshore IT outsourcing. The company in 2000 launched a pilot project to let Cognizant Technology Solutions Corp. handle the migration of a suite of programs, originally written in Natural 4GL, to Visual Basic. Migration and subsequent operation of the system were taken over by a team of on-site Cognizant managers and India-based employees. As Cognizant took over all application management and any new development that became necessary, five RadioShack IT employees were consequently freed up to be retrained.
RadioShack turned over the maintenance and operation of other home-grown systems—including one used for overnight retail store polling and written in Tandem C—to Cognizant for offshore outsourcing. Unlike other companies, RadioShack hasnt laid off anyone as a result of offshore outsourcing. RadioShack CIO Evelyn Follit said the company takes great pride in the fact that, since the outsourcing was announced, RadioShack has been retraining 60 of its 512-member IT staff in project management and analyst skills.
Follit, in Fort Worth, Texas, said Cognizant has had no problem delivering the level of IT skills to support RadioShacks applications. One of the reasons—and a factor in why offshore outsourcing makes sense today for many companies—is that the $4.8 billion retailer doesnt do much development anymore. Increasingly, the company uses off-the-shelf packages, such as Retek Inc.s enterprisewide supply chain package, that dont require heavy-duty programming skills.
Once U.S.-based companies turn to offshore outsourcing, its rare for them to bring jobs back. United States Cold Storage Inc., a refrigerated storage company in Cherry Hill, N.J., for example, turned to Cognizants offshore services in 1999 to help it upgrade from an outmoded IT infrastructure to a Web-enabled environment. At the time, its 11-person IT staff was running 30 separate IBM S/36 minicomputers and had no e-commerce or Web skills. And the company was having difficulty finding and retaining IT staff, said Director of Transportation Larry Alderfer. Cognizant, through its offices in India, helped USCS deploy a new Web-based transportation system that uses AS/400s, IBMs WebSphere application server and a Java interface. The systems are now the foundation of the companys e-USCold business-to-business site. In all, Cognizant took over 95 percent of USCS development and support activities.
But that was 1999. This is now. Finding and retaining IT workers with all but the rarest skills is hardly an issue. Why, then, doesnt USCS reverse course and hire domestically?
“Its an ongoing debate,” Alderfer said. “Its a great market to hire people in now. Theres a lot of well-trained technical people now available, in all aspects, whether its Web-based or traditional programming. But we still have the situation where we have to manage those people. With the outsourcing, we dont have all those headaches. We tell them the cost and when its required, and they deliver when theyre expected to.”
Who Goes, Who Stays?
As the pace of offshore outsourcing quickens, the million-dollar question for U.S. technology workers is: What jobs, if any, are immune from outsourcing?
For his part, Meta Groups Rubin said he believes that all IT skills, no matter how specialized, are vulnerable to offshore outsourcing.
In general, however, network management, desktop support and security may be less likely to be shipped offshore than some development-oriented skills, experts say. Thats because those jobs are too localized to export. At USCS, for example, the five or so remaining IT employees are responsible for those job functions. “[Those roles are] so critical, we feel you have to have people right on it,” Alderfer said.
Ultimately, the only way an IT worker can ensure that his or her job is somewhat protected is to tenaciously entwine technical knowledge with business knowledge, Meta Groups Rubin said. Thats exactly what John Brudi is doing. When RadioShack announced its outsourcing plan in 2000, Brudi had been working as a DB2 programmer at the company for about six months. Now hes five months into a seven-course track at George Washington University offered through ESI International that will eventually turn him into a project manager, armed with the Project Management Institutes Project Management Professional certification.
“Where all the development is outsourced, youve got to have people to manage that,” Brudi said. “Youll [always] have some internal development, but the majority can potentially be outsourced. … Youve got budgets, schedules to deal with. It has to be managed by someone.”
The onshore need for people close to the business with the right combination of IT and business skills was echoed by Kim Ross, CIO of Nielsen Media Research Inc., in Dunedin, Fla. Even though Nielsen began outsourcing to Cognizant in 1995, Ross has been training IT staff in Web security and Java architecture—skills theyve been learning side by side with Cognizant contractors. Why? Ross said Nielsen will always need programmers with business knowledge to run data about television viewing and Internet use through its statistical processing systems and high-performance decision support systems. For the most part, that work cant be outsourced, he said. Developers must be focused on the core business.
For those tech-focused IT professionals who so far havent been motivated to acquire strong business knowledge, the message is clear: Like agriculture, textiles and auto manufacturing before it, IT has become industrialized.
The world is your competition.
IT Careers Managing Editor Lisa Vaas can be reached at [email protected]