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Outsourcing Honesty (New View=No View)

I just finished reading an article in InformationWeek about IT Outsourcing. [InformationWeek 7-28-2003, 32]. The article, while as typically breezy as most CMP pseudo-news, reminded me of the longstanding debate here on this board, and made me wonder.

The article made me wonder exactly how much money companies are saving overseas. I care about the hidden costs, but what are the measurable costs and savings? It made me wonder who is doing the outsourcing? I hear about it, but I don't see it. Is it every fortune 500 company? Only a few? It made me wonder about the number of jobs we've actual lost, not in the future but now.

Armed with these questions, I went searching for answers. And I found none. Where is the honesty? While our industry is being damaged now, and the outsourcers will be damaged by the impending political backlash, where is the actual information that lies behind the FUD and silence?

What I would like to see is a site, much like f*ed company, that posts these numbers from insiders. I would like to see articles about the pros and cons of both sides. I would like to read an ongoing debate between both sides that covers ethical, financial, and moral considerations. Finally, if this issue is not going away (as I think it won't), I want to see some conversation about how I and others like me, as American technologists, can compete effectively against the overseas firms.

I assure you that none of these at home companies want to outsource if they don't have to. No one wakes up and makes that decision with a clear conscience. But what are the alternatives?

If we can start getting active, honest discussions moving forward concerning logical solutions instead of ethical conundrums, something other than 'cut your prices to 1/3', there may be a solution. I think we may be able to turn the outflow that has risen with the new global economy into an influx of competitive advantage that arises, not from lower living costs and conditions, but from advancements in technology and information sciences. 

I think that, once armed with facts, we can look overseas and say 'bring it on', and welcome the competitive motivation that our brethren from other countries can bring to us at home.

Just some thoughts and not so humble opinions.

Dustin Alexander
Wednesday, July 30, 2003

"I assure you that none of these at home companies want to outsource if they don't have to. No one wakes up and makes that decision with a clear conscience. "

I don't think I can exactly agree with that.  Late last year, Motorola outsourced their development to India, and according to someone in the "know", it came down as a corporate directive to do so.  The only "why" answer was because everyone was doing it, so it must be good business.

Joe AA
Wednesday, July 30, 2003

For reasons too numerous to mention, a website where company executives or some other type of insider could visit and post actual hard data will never happen.

As for whether or not companies save money by outsourcing -- it doesn't really matter what you or I believe -- more and more corporations are doing it each day. 

Below, are two ComputerWorld articles that I read today. The first one seems to be relevant to this discussion.

Does outsourcing offer savings at too high a price?
http://www.computerworld.com/careertopics/careers/story/0,10801,83169,00.html?SKC=careers-83169

Q&A: Cognizant CEO says, 'We're recruiting like crazy'
The offshore outsourcing firm is expanding its U.S. hiring
http://www.computerworld.com/careertopics/careers/story/0,10801,83309,00.html?SKC=careers-83309

One Programmer's Opinion
Wednesday, July 30, 2003

"If we can start getting active, honest discussions..."

While I wish it were so, it ain't.  The discussion boils down to can you produce against a peer who will work for half your salary?

End of discussion...

BigRoy
Wednesday, July 30, 2003

To some extent, all the "oh crap, everything is going offshore" articles help U.S. developers.  It's keeping kids from going into IT and generally makes IT look unattractive for career-switchers.

The sky may or may not fall.  But if it doesn't, at least we'll have less competition for jobs in our field.

Bring on the doom-and-gloom sentiment.  Whatever happens will happen anyway.

Bill Carlson
Wednesday, July 30, 2003

"The discussion boils down to can you produce against a peer who will work for half your salary?"

What do you produce?  It's very subjective from job to job.  As a guy that works at a consulting company - I produce software but I do have to have a good relationship with my customers.  We've hired 1 "foreigner" in the past and he didn't fit in.  It wasn't that he wasn't a good programmer (he wasn't though), it was that our clients A) had trouble understanding him when he spoke and B) there was no social rapport between him and his clients.  They have a different culture, lifestyle, etc.  So it's hard to relate.  On the other end of the spectrum, if you're not "customer-facing", you might have more trouble keeping your coding job from offshore development. 

Eventually, I see this industry becoming one primarily for independent consultants (just like plumbers) and then small consulting shops that manage offshore development for larger projects.  Opinions?

GiorgioG
Wednesday, July 30, 2003

http://www.theregister.co.uk/content/7/32080.html

MSHack
Wednesday, July 30, 2003

Dustin - I sent an email to Pud, webmaster for fuckedcompany.com, suggesting he put up a parallel site where people can report overseas outsourcing.

You *know* that most companies would be embarrassed if their outsourcing was public knowledge. While Americans can stick their heads in the sand as well as anyone, when headlines thrust "Verizon is sending five thousand jobs overseas" under their noses, they *will* react. And hopefully then so will Verizon.

I'm honestly not *too* worried about foreign outsourcing - I think between backlash and realization that the savings aren't there will staunch the flow within two years, and we'll hold steady at some low level of outsourced work...

Philo

Philo
Wednesday, July 30, 2003

While I wish it were so, it ain't.  The discussion boils down to can you produce against a peer who will work for half your salary?

End of discussion...


But salary is not the only consideration when measuring costs of outsourcing

Daniel Shchyokin
Wednesday, July 30, 2003

In case anyone is interested, I have a website (soon to be launched) dedicated to discussing offshore outsourcing from the perspective of US IT professionals.

http://www.YourJobIsGoingToIndia.com

I have a forum for listing companies that use offshore outsourcing (allthough no posts yet, as the site just went live).

The forum is named "Companies who use offshore outsourcing" and can be accessed fromt he "Forums" link on the home page.  You must register to post. 

Tim Platt
Wednesday, July 30, 2003

I too take outsourcing articles with a grain of salt. I do this, not because I feel the issue is overhypesd but as Big Roy points out, I feel that I can produce against someone working at half my salary. Part of this belief is simple arrogance, part of it comes from the results of what I've done in the past, but the majority of it comes from my experience doing what I do. It comes from my exposure to the industry I happen to have chosen to dedicate my life to. I have seen massively redundant, inefficient processes in every walk of corporate life, but nowhere have I seen them more than in the software industry itself. If we can but contribute our skills for process automation and efficiency in a small manner to our daily routines, then we should have nothing to fear from our less diligent brethren. This is, after all, a war of minds and not salaries. Can you really argue that they should not get the money, if they can match us line for line and beat us dollar for dollar?

Now, Joe, you point out that the site I recommend will do no good. And yet you contradict yourself by stating the case of Motorola, whose bandwagon policy has them throwing out their internal IT staff on the mere premise that it saves money, with no solid evidence. If more and more companies are making the decision to outsource based on the quantity that already have, as One Programmer tells us, does it not make sense to build a reliable foundation of knowledge from which they can make the decision, not to outsource, but to keep their internal divisions? If the default is to join with the rest of the crowd, does it not rest on the shoulders of the minority to prove that that decision will lead them astray?

Dustin Alexander
Wednesday, July 30, 2003

"I assure you that none of these at home companies want to outsource if they don't have to. No one wakes up and makes that decision with a clear conscience."

- The goal of a company is to make money.  If a company doesn't make money, eventually it will go under causing everyone will lose their jobs. Any effort to reduce costs to keep a company profitable is therefore justified in the minds of some, and their consciences are clear becuase of their reasoning. A director at a former employer of mine was quite up front in saying that she wanted software development done in India to reduce costs.

"It's keeping kids from going into IT and generally makes IT look unattractive for career-switchers."

- I think this is true. I'm going for my MSCS and have to knock off some prerequisites since my BS is in engineering. I'm taking the classes at both a local college and a community college, depending on course availablility. Between the 2 schools I've seen a good cross-section of the CS students. The things I've noticed:
* Class sizes are much smaller than I expected (10-20 students in some).
* Many students drop out after the first couple of weeks. One class started with 27 students and ended with 11.
* About 1/4 - 1/3 of the students can't manage to turn in any given assignment on time.
* There are many students who have already been working in the IT field and are now getting their degrees. CS enrollment is down across the nation, so if many of the students entering these programs have already worked in the field, then the amount of new blood coming into the sector is even lower than the numbers would suggest.

Even so, I still don't trust Gate's spin on this issue the other day (from http://www.kirotv.com/money/2363924/detail.html ):

"'Microsoft Corp. and other U.S. firms may be sending work overseas to cut costs, but the market for software developer jobs in the United States remains strong and needs more qualified candidates,' Microsoft Chairman Bill Gates said Monday."

"Gates, speaking at Microsoft's fourth-annual Faculty Research Summit, told researchers from 115 universities that fewer students are seeking computer science degrees. Even scholarships designed to attract minority students to computer sciences are drawing fewer and fewer applicants, he said."

Nick
Wednesday, July 30, 2003


I figure that there are two parts to the off-shoring "fad".

1) Save money by using off-shore employees that are paid less.

2) Depress salaries in the US.

Either of these "saves" companies money.

One advantage of outsourcing (or off-shoring) might be that it makes one's IT costs more predictable.

njkayaker
Wednesday, July 30, 2003

>"I do this, not because I feel the issue is overhypesd but as Big Roy points out, I feel that I can produce against someone working at half my salary."

So do I. With my company-specific knowledge and industry-specific experience, and the advantages I have as a result from being in the same place with the people for whom I create software, I can definitely equal or outpace two developers on the other side of the world.

If employers evaluated the decision to outsource with an open mind to the possible pitfalls, the hidden and real costs, and the productivity of local employees, outsourcing would not be skyrocketing the way it is now.  If there is any time it should have been skyrocketing, it was 3-5 years ago when the dotcom boom had companies throwing six-figure salaries at code monkeys who would jump ship after six months.

The dotcom craze has proven that corporations love to follow fads even when doing so involves elusive profits.  My main worry is that outsourcing won't save anything for most companies, but they will do it anyway, making their shareholders, employees and customers suffer the consequences (after securing big bonuses for executives who touted it as a guaranteed money saving opportunity).

The only companies who will see a significant net savings from outsourcing when total costs (including hidden) are considered are those that had a really crappy set of internal IT staff.  True, there are a lot of companies like that, so from that perpective outsourcing can bring real benefits.  Unfortunately even those with very strong talent are laying their people off so they can jump on the offshore bandwagon.

T. Norman
Wednesday, July 30, 2003

You know, I think I've finally figured out the real motivation behind IT outsourcing. It goes something like this:

Our IT projects always fail. They'll keep failing whatever we do. So we might as well fail with people in India costing us $30 an hour instead of people here costing us $100 an hour.

-Chris, feeling cynical.

Chris Tavares
Wednesday, July 30, 2003

From what I've seen, the net real savings from outsourcing are small or non-existent.

The problem is that corporate managements do not make decisions on actual costs, but only on the paper costs they can present to the board. On paper, the Indian outsourcer charges less.

In reality, lost opportunity of non-recognised new opportunities, costs due to communication failures, and costs due to rework make outsourcing much more expensive than it seems on the surface.

Even in this scenario, the paper costs charged by the outsourcers are much higher than they should be, given their low labour costs. So managements in outsourcers are pocketing very high margins. This is one of the motivations for outsourcing. It's like recruiting.

This is also why all the usual fast-bucks merchants like Gartner are lining up behind outsourcing. They get a cut by various means.

analyst
Wednesday, July 30, 2003

While the outsourcing firms' markups on labor costs are quite healthy, their profits aren't as huge as the labor differential might suggest, because their infrastructure costs are generally the same or MORE expensive than in the US.  It might cost 30-40% of your salary to give you a cubicle and its associated facilities, but it is double the Indian's salary to do so.

As I pointed out in an earlier thread, office real estate costs in the major Indian cities like Bangalore and New Delhi is comparable to the most expensive US cities like New York and Boston, and most outsourcers are forced to converge in those expensive areas because that is where the broadband Internet connectivity is available.  They also have costs that US companies don't have, like maintaining a backup generator that provides 100% power and is used regularly because electricity goes out frequently for hours at a time like the rolling blackouts they used to have in California.

Bottom line: those managers who try to justify their outsourcing decisions by boasting that they can hire 5 or 10 Indians for the price of one American are lying, because even if the Indian programmers worked for free their total paper cost would still be at least 1/3 of what it is for Americans.

T. Norman
Thursday, July 31, 2003

The biggest problem is that the entire country is loosing control of its information infrastructure.  That is scary.  A few scant years ago this same infrastructure was considered the differentiator of a business.  Now is it something we allow another company in an under developed country that hasn't been known for fair business practices control?  Companies used to protect their business secrets.  Now they give them to people they've never met, in a country they've never visited.  It really makes no sense.  It is yet another example of how corporations don't grok the importance of their IT depts.

Well there will be plenty of people over seas who will know exactly how a Fortune 500 company ticks, and will want to take advantage of that. 

I bet companies won't save that much money, yet the U.S. will loose jobs, control over their businesses, while possibly spiraling the economy down.  I see the risks as higher than the rewards in many regards.

http://www.baus.net/

christopher baus
Thursday, July 31, 2003

In another thread there was discussion about business guys and sales people, and how they differ from developers.

I think, if sales guys worked as developers, the way they would protect their interests would be ways that would actually help deal with outsourcing.

That is, they would recognise what parts they actually contribute to the business, and demand ownership and ongoing commission on it. They would insist on bonuses for meeting defined objectives.

Their contracts would provide massive premiums if they were required to train people who would lay them off, and so on.

analyst
Thursday, July 31, 2003

It might seem this makes them more expensive and thus more prone to outsourcing, but the fact is, companies wouldn't be using them unless they provided something that can't be obtained from outsourcing.

So they might as well make the most of what it is they provide.

analyst
Thursday, July 31, 2003

The guy who says outsourcing saves jobs should be a bit more careful. This is just a PR line the offshorers and Gartner are pushing.

If you have a look, you find most of the outfits offshoring their IT work have actually increased their prices to consumers.


Thursday, July 31, 2003

In this discussions I always find it difficult to assertain exactly what the argument against outsourcing is. The arguments nearly always seems to cover two points:

- there's no real savings to be had
- it's wrong to cut US jobs for outsourcing

So say, for arguments sake, that outsourcing *does* save a company money (taking everything into account) - do the people on this board still think it is fundamentally wrong based just on the second argument??

Personally, I think a case for outsourcing can be made and in some instances it is a good business strategy . Although I also think a lot of thought has to be given to the longer term consequences and not just a focus on short term bottom line analysis.

Yanwoo
Thursday, July 31, 2003

Yanwoo, in broad terms, I, for one, am saying:

1. the corporate managements that think they're saving money or helping their company aren't equipped to properly make that assessment and don't care as long as the results don't show up for three years.

2. even if it does, yes, it is wrong because it represents an unfair exercising of power by one group in the economy at the expense of others. The scale of the effects are relatively new and our social systems have not yet adapted to this.

analyst
Thursday, July 31, 2003

Effective outsourcing tends to rely on onsite H-1B and L-1 visa workers.  Take away a corporation's ability to move workers around the world at will and the costs and chances of failure will certainly go up.

Imo, if H-1B and L-1 visas were reduced you wouldn't see so many companies attempting to outsource every job they can.

Right now the outsourcers (mainly large corporations) are sticking it to the American workforce in both directions.


Thursday, July 31, 2003

I buy only Seebago shoes, only Levi (made in USA) jeans, use licensed MS software, have an HP notebook and printer, and yet I haven't even been within a couple of thousand miles of the USA.

What would some of you guys want? Nobody outside the US to buy US software because local jobs go? ALL US films  banned in Europe to protect EU filmakers, and all non-Albanian TV programmes banned in Albania to protect local talent.

Meanwhile the US and EU, by continuous subsidies to agri-business, leave tens of millions of third world farmers literally without food to put on the table they don't have.

Stephen Jones
Thursday, July 31, 2003

Stephen is absolutely right. It reminds me of something I read, I don't remember where, talking about people playing the national lottery in the UK. As the author said: you already won the day you were born as a middle class male in western Europe.

Its just greed
Thursday, July 31, 2003

>"So say, for arguments sake, that outsourcing *does* save a company money (taking everything into account) - do the people on this board still think it is fundamentally wrong based just on the second argument??"

If the real net savings are significant after the tangible costs+hidden costs+risk factors are properly considered, then Yes they should outsource. That's competition. If the next guy can do the job cheaper with at least the same quality, then he should get the work over me, whether he is in India or Indiana.

The reasons why I believe the net savings with offshore outsourcing are elusive include:

- Too many corporations are jumping into it way too fast without keeping an open eye to the potential pitfalls, and they have a demonstrated tendency to jump on bandwagons that are unprofitable in reality.

- If they were really concerned about savings, the dotcom and Y2K era is when they should have been offshoring big-time, when American programmers were so expensive to hire and retain and Indian programmers were cheaper.

- Very good developers are 10X as productive as mediocre ones.  Given that total *tangible* costs for American programmers are only 2X an Indian programmer, it won't be that hard to find American programmers who are twice as productive as their Indian counterparts, especially when they have industry-specific and company-specific knowledge. At the same time, the average quality of Indian programmers is going DOWN because hiring standards are less stringent than they used to be 5 or so years ago.  They are going through their own "tech boom" in which anybody with a smidgen of programming ability can get a job.

- After talking to first-line US managers who have worked with offshore teams, I glean that they are not having a pleasant experience.  In particular, the US developers and business people have to write MUCH more detailed specifications and requirements to get the offshore team to do it right. A one-page specification that could be written in an hour becomes a 10-page pack of essays and diagrams which takes a full day or two to write, thus eating up more time and effort on the US side.

- The first-line managers cannot give honest feedback to upper management because if an offshore project fails, the manager is blamed for not making it work, rather than upper management recognizing the possibility that the project was not a good candidate for outsourcing.

- Minor changes to requirements during the development process that would have been immediately done by an in-house developer can become contract renegotiations involving the upper management of the US firm and offshore firm. Sometimes that can be a good thing because it can help reduce scope creep, but too often the end result is that the software doesn't do what is needed or development is delayed while the negotiations take place.

- Many companies who do offshoring don't have a basis for knowing how much they saved or even if they saved anything, because they don't have good enough estimation processes and statistics to tell them how much effort the project would have taken to do locally.

T. Norman
Thursday, July 31, 2003

One area that apparently has been successfully outsourced to India is GIS mapping.  (Taking the map plots and digitizing them.)  It's tedious, time-consuming, eye-straining work that can easily be checked for correctness on the return to the US.

However, this used to be the entry-level job for GIS design work and programming.  With this work, which used to be plentiful, now difficult to come by, GIS companies are having to hire people straight out of school for positions that used to require 2-3 years experience.  Something is being lost, as a friend in that biz told me.

Also, a great deal of this work is the innards of cities and large infrastructure facilities.  It isn't being advertised that all the most intimate data on the vulnerabilities of our airports, etc. are being shipped overseas.  I wonder how much the backup tapes for these projects are worth?  Not to be xenophobic - this is an issue even in the US, but at least here the company is protected by US law.

Contrary Mary
Thursday, July 31, 2003

Stephen Jones wrote, "I buy only Seebago shoes, only Levi (made in USA) jeans, use licensed MS software, ...."

HP is an multi-national corporation which currently has it's world headquarters located inside the United States. Same thing with Microsoft. 

If you want to call these firms "American companies" just because their corporate headquarters are currently located in the United States I can't stop you from doing so.

Stephen Jones wrote, "What would some of you guys want? Nobody outside the US to buy US software because local jobs go? ALL US films banned in Europe to protect EU filmakers, and all non-Albanian TV programmes banned in Albania to protect local talent."

I am against the fact that companies with a lot of cash can simply pack their bags and re-locate anywhere in the world they please while most of the people living on this planet cannot. For example, Accenture was able to save millions of dollars a year on taxes simply by changing their postal address.

Stephen Jones wrote, "Meanwhile the US and EU, by continuous subsidies to agri-business, leave tens of millions of third world farmers literally without food to put on the table they don't have. "

Meanwhile, the US government continues to subsidize large corporate agri-businesses located in the United States leaving millions of small rural American farmers literally without any money to put food on the table.


T. Norman wrote, "...  In particular, the US developers and business people have to write MUCH more detailed specifications and requirements to get the offshore team to do it right. A one-page specification that could be written in an hour becomes a 10-page pack of essays and diagrams which takes a full day or two to write, thus eating up more time and effort on the US side."

Imo, the argument of having to write better requirements should be put under "that can be a good thing" category.  ;-)

One Programmer's Opinion
Thursday, July 31, 2003

Sure, better requirements can be a good thing, especially for companies where requirements are currently conveyed only by word of mouth.  But if you have to spell out all sorts of silly details because the programmers don't have domain knowledge, their lack of knowledge and the additional effort you expend to convey that knowledge means the savings will evaporate.

For example, I would expect most of the Matlab programmers have strong calculus backgrounds.  For them, in part of a specification you could simply write, "when the user clicks the Solve button, solve the given equation using 30 iterations of Newton-Raphson and show the value of the x-intercept."  If the programmer doesn't have the background knowledge, you have to detail out the steps of Newton-Raphson, how to do derivates, and how to apply each step to the constructs in the program, etc. so that a one-sentence instruction turns into two pages. So after the specification writer has spent extra effort to describe all the details, the programmer now expends extra effort reading and understanding it.  !Poof! and your savings are now gone.

(Not that the above is not a real world situation, it is just a hypothetical scenario to make a point. Similar situations could apply to other domains such as banking, insurance, biotech, pharmaceuticals, etc.)

T. Norman
Thursday, July 31, 2003

T. Norman,

I don't believe the "lack of specific domain knowledge" argument is something that most executive managers take into account that often.  If they did, perhaps the domestic and overseas IT outsourcing business wouldn't be a multi-billion dollar industry.

Now having said this, when I have applied for certain full-time salaried positions in the past, I have encountered the "Sorry, but you don't have the industry experience we are looking for" argument.  :-(

One Programmer's Opinion
Thursday, July 31, 2003

I still think it is dangerous for a company to loose control over its IT dept.  I think it is even more dangerous to loose control over its products if they happen to be software products.

I don't care how much money they save in the short term.  Has anyone thought that the outsourcers might raise their rates when they realize they are in control now? 

christopher baus
Thursday, July 31, 2003

For the original poster, did you find a reasonable place that talked about Java when it came out?

It's interesting when they use the justification, "We can't compete without outsourcing too!"  IBM will go bankrupt in three years without it, I'm sure.

However, complicating factors:
1) Need to gain experience in new things.  There was a point to jumping on Java; companies learned firsthand its ins and outs and were able to steer its development.
2) Increasing demand increases labor supply, just like there's a glut of Java programmers now.
3) More contacts with outsourcing companies and individuals.

anonymous
Thursday, July 31, 2003

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