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May 13, 2002
Fair Trade on Jobs?
By Lisa Vaas

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 he'd 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\ufffdincluding post-Sept. 11 nationalism and a recession-induced glut of IT skills on the domestic job market\ufffdto stem the flow of IT jobs to offshore outsourcers. They haven't. 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\ufffdnamely, Canada or Mexico\ufffdIT 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\ufffd20 percent per year\ufffdof 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.

What's behind the acceleration in offshore outsourcing is obvious: An unprecedented impulse by enterprises to slash IT costs. Meta's Rubin calls it the "El Nino of IT." For the first time in technology history, said Rubin, there's both pressure on IT spending to shrink as a percent of revenue, and absolute dollar spending on IT has dropped.

It's 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. Gartner's rule of thumb is that enterprises cut between 25 percent and 40 percent from project costs when using the offshore model.

It's 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\ufffdincluding one used for overnight retail store polling and written in Tandem C\ufffdto Cognizant for offshore outsourcing. Unlike other companies, RadioShack hasn't 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 RadioShack's applications. One of the reasons\ufffdand a factor in why offshore outsourcing makes sense today for many companies\ufffdis that the $4.8 billion retailer doesn't do much development anymore. Increasingly, the company uses off-the-shelf packages, such as Retek Inc.'s enterprisewide supply chain package, that don't require heavy-duty programming skills.

Once U.S.-based companies turn to offshore outsourcing, it's 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 Cognizant's 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, IBM's WebSphere application server and a Java interface. The systems are now the foundation of the company's 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, doesn't USCS reverse course and hire domestically?

"It's an ongoing debate," Alderfer said. "It's a great market to hire people in now. There's a lot of well-trained technical people now available, in all aspects, whether it's Web-based or traditional programming. But we still have the situation where we have to manage those people. With the outsourcing, we don't have all those headaches. We tell them the cost and when it's required, and they deliver when they're 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 Group's 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. That's 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 Group's Rubin said. That's 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 he's 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 Institute's Project Management Professional certification.

"Where all the development is outsourced, you've got to have people to manage that," Brudi said. "You'll [always] have some internal development, but the majority can potentially be outsourced. ... You've 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\ufffdskills they've 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 can't be outsourced, he said. Developers must be focused on the core business.

For those tech-focused IT professionals who so far haven't 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.

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May 13, 2002
Why IT Pros Can't Get Jobs
By Jeff Moad

After reading the information technology association of America's recently released third annual report on the state of the IT work force last week, I couldn't escape the nagging feeling that something wasn't quite right. On one hand, the ITAA said 2001 was an unnatural disaster in the IT labor market. Recession-spooked employers cut 528,496 U.S. IT jobs.

That's bad news for IT professionals. But it's good news for employers that for years have been chronically whining that they aren't filling open jobs because they can't find IT workers with the right skills. With a half-million freshly laid-off IT pros on the market, problem solved, right?

Apparently not. The ITAA report also said that, despite all the layoffs, employers expect they still won't be able to find IT people. In fact, the report said, although companies expect their need for more IT workers will rebound over the next 12 months, many of the newly opened positions will remain unfilled because, you guessed it, potential hires with the right skill sets can't be found. Of the aggregate 1.1 million IT jobs expected to open over the next 12 months, the report said, 578,711 will go unfilled. (See related story at www.eweek.com/links.)

I don't buy the so-called skills gap as the reason enterprises aren't hiring IT workers. The skills are there, but enterprises are determined to squeeze more productivity out of current employees. In fact, the same week the ITAA issued its report, the U.S. Department of Labor said that, in the first quarter of this year, hiring freezes meant labor costs as a percentage of output took their largest single quarterly drop in nearly 20 years.

That will make shareholders happy, but I wonder if it's coming at a very dear price: the self-esteem of laid-off IT workers who are continually told they don't have the "right skills" and burnout for those IT workers who are still employed.