IT Outsourcing

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The press seems to have finally picked up on the trend in IT outsourcing. While IT outsourcing to India and Eastern Europe has been going on for some time now it seems that the subject is just beginning to pick up steam both in online discussions as well as in the media. IÂ’ve found two recent articles the most interesting; Backlash by CIO Magazine and The Coming Job Boom in Business 2.0.

The Business 2.0 article was the one that really grabbed me though because it speaks to the more general trends in labor. Since itÂ’s walled off behind a subscription let me just summarize some of the thoughts in the article:

The Baby Boomers are retiring and over the next several years this massive outflow of labor resources will cause a major labor shortage.

Based on predictions regarding the ratio of people leaving the job market vs. those entering the job market not only will outsourcing be necessary but the US may not be able to outsource jobs fast enough leading to wage inflation that will make the 1990Â’s look tame in comparison.

Obviously this is not the standard view seen if one reads of the horrors of outsourcing. Those stories tend to focus on the loss of jobs and the inability of the economy to reabsorb those workers into other job functions. ItÂ’s rare to see articles like this one in Wired that point out that while many companies are both outsourcing and shedding US headcounts, IT worker wages are increasing at a pretty good clip.

So what is the truth about outsourcing? We probably wonÂ’t know for many years and most predictions will be wrong (as they normally are) but here are a few of my observations:

I have yet to see a credible argument against the scenario proposed in the Business 2.0 article. IÂ’ve searched the Internet and read the readerÂ’s letters section in the subsequent issue of the magazine and where I have found reasoned critiques they are usually based on faulty assumptions. For instance several critics have argued that due to market conditions, longer expected lifespan, etc., that the retirement age will be pushed out. However, the author has addressed these issues by demonstrating that his sources for the data (the Social Security Administration being one major source) have already factored those variables into their predictions and have historical data that supports those predictions. So, based on the information available at the moment it would seem that we would see a net worker decrease in the US.

Outsourcing has hidden costs associated with it that will become more visible as the market matures. CIO does a good job at covering this topic. ThereÂ’s also the issue of supply and demand (IMHO not given enough attention to in the CIO article). As more and more companies outsource IT the demand for labor in foreign markets will increase and drive up wages. As wages increase to a point where it no longer provides a benefit to outsource companies will move operations to another developing market. Constantly shifting IT operations will have its own costs that have never been properly factored into ROI calculations but will probably get more attention as India starts to lose its pricing advantages over the next couple of years.

Much of the analysis on IT outsourcing seems to focus on the idea that once a C programmer always a C programmer. By that I mean that outsourcing critics usually assume that skill sets stay static or that someone has to be completely retrained. Currently there are thousands upon thousands of Java programmers who have never participated in any formal training. Many of them are C and C++ programmers who picked up Java as a way to make themselves more marketable. Of course, that is a major difference in the analysis. A C++ programmer who learns Java during boom times is making him/herself more marketable while someone forced to adapt their skillsets to a changing market is being retrained. I feel this is a major disservice to IT workers because it eliminates the concept of value. You are employable because you bring value to the business. You arenÂ’t entitled to work regardless of how much experience you have or years of formal training youÂ’ve completed. You are valuable only when you create value for the employer. So instead of forming unions I think the smart solution is to peer into the crystal ball and try to determine where you can insert yourself most effectively into the value chain. I donÂ’t mean that to sound callous but if you really believe that all the IT jobs are going overseas itÂ’s far easier to adjust now than once theyÂ’re gone. Why not pick up a foreign language so you can provide value to your US employer when dealing with outsourced IT projects? Why not move up the IT hierarchy and start educating yourself about project management? Why not go back to school and pick up an MBA to go along with your tech degree? Do you work on accounting systems? Get a degree or other training in finance and accounting.

The bottom line is that a change is coming. Whether it be a labor shortage that drives up labor prices or a labor glut as jobs are shipped overseas, something is happening. Whether you decide to fight it, eagerly await it, or simply want to adapt the one thing that is sure is that hedging your bets is always a prudent option.

Update:

I found two articles over at E-Commerce Times that shed some light on some of the points I made above. The first, How Job Seekers Can Outsmart Outsourcing, probes what kinds of jobs are outsource-proof. One skill that they mention is the same as I’ve mentioned above, project management, and the other is one that I failed to mention completely by oversight, security. The second article, Probing the IT Skills Shortage, again mentions project management as a skill that many companies are having a difficult time finding qualified people to fill. The article also mentions that there are very niche sort of IT markets like health care that have even developed their own certification standards. I think the message here is that the days of the technology generalist are over. As technologies become increasingly complex it becomes more difficult to just pick a programmer or technologist up off the street and teach them the skills required in a particular industry. For instance, financial systems are an area of specialty. Trading markets have years of theory behind them and it takes someone who can do more than just write code to understand how all the pieces of the puzzle interact. Same goes with many other areas within IT.

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