Outsourcing: Sorting Out The Hype, Reality, Risks And Benefits

Outsourcing: Sorting Out The Hype, Reality, Risks And Benefits

Summary: On June 28th, the Churchill Club held a panel discussion, "Outsourcing: Sorting Out The Hype, Reality, Risks And Benefits." Mark Boslet, a writer for Dow Jones, was the moderator.


Download this PodcastOn June 28th, the Churchill Club held a panel discussion, "Outsourcing: Sorting Out The Hype, Reality, Risks And Benefits." Mark Boslet, a writer for Dow Jones, was the moderator. The panelists included:

Randy Altschuler, Co-CEO, OfficeTiger Robert Bailey, President and CEO, PMC-Sierra Vivek Paul, Vice Chairman, Wipro Limited; President, Wipro Technologies Donald Richards, Global Managing Partner-Application Outsourcing, Accenture

The audiocast of the panel is available as an MP3 that can be downloaded or, if you’re already subscribed to ZDNet’s IT Matters series of audio podcasts, it will show up on your system or MP3 player automatically (See ZDNet’s podcasts: How to tune in). The consensus among the panelists was that outsourcing is more than a cost savings measure--it's about improving productivity, automation and improving process quality.

Paul noted that areas such as governance and the scaling of projects are lagging. The panelists also provided guidelines for determining when and what to outsource. Other topics included security and intellectual property protection; negotiating contracts (contracts are irrelevant after just a few months); business process outsourcing; language and location; and the impact of China in the outsourcing marketplace.

Prior to the Churchill Club event, I interviewed Wipro's Vivek Paul. The audiocast of the interview is available as an MP3 file that can be downloaded or, if you’re already subscribed to ZDNet’s IT Matters series of audio podcasts, it will show up automatically.

Topics: CXO, Browser, Enterprise Software, Outsourcing

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  • Here's a reality the balance-sheet fanatics don't understand:

    Short term profits do not mean long term endurance.

    But moving well paying jobs out of this country, you're not only removing peoples' very ability to live (food and shelter ain't free and we even have to pay to live on a plot of God's very Creation, sheesh), you're also slowly whittling away the core foundation of our economic structure: More than 2/3rds of which is DEPENDENT on consumer spending. Fewer consumers translates into few purchases (cheap plastic trinkets, cars, HOUSES - that bubble's already deflating).

    Add to that, this offshoring only HURTS our trade deficit. Indeed, what is made in America anymore anyway?

    Add everything together and the dollar is going to break like a rubber ball dipped in liquid nitrogen and thrown against a wall. With a worthless dollar, you can have billions in some electronic account and it isn't worth the electricity required to keep the bloody server cluster functioning.

    Speaking of electricity, oil is crucial for that as well. We can barely protect the Iraqi oil wells as it is and those are rather needed for everything in the American lifestyle... warring one more oil-rich country out of reasons (and it doesn't matter if the reasons are real or not) will cripple the US, if not worse... or if a seller of oil sets up an embargo, we're effectively toast too. (Never mind China is vying to buy Unocal, which is yet another sticky mine... does the phrase "Hoisted by our own petard" mean anything yet? It should...) Never mind "peak oil", but now I'm straying too far...

    As for productivity, just how far can people be pushed before they disintegrate? People need time to relax and LIVE as well; we're more than organic machines fit for your exploitation. Especially once money issues are introduced; most people don't like taking pay cuts while being "encouraged" to work harder and longer. (and some wage indicator charts over the last 30 years have sdhown our productivity has more than doubled; yet our pay has hardly even begun to match.)

    Short term profits blind too many people to long term consequences. But I fear we're all beyond recriminations at this point.
    • coming depression

      that there will be some sort of depression in the
      United States is inevitable, in fact when you
      enter a job market that has 20 times the
      available bodies for a job, your chances of
      getting the wage you want (or even the job) are
      severely reduced. We are being punished for
      siding with union organizers in the last century,
      so the old money interests will drain this place
      (while retaining their own stake) and leave a
      population of poor that will remain for
      generations (if not forever). Enjoy that Ipod, it
      could be the last nice thing you ever have.
      Welcome to the global economy.
  • If it works with technologists then why not with technology reporters?

    Perhaps it hasn't hit close enough to home yet for people in your profession to understand the true significance of outsourcing. But have no fear, I hear that English is a second language in most of the up and coming economic regions and someone will be willing to do it for 5 bucks a week.

    This country is truly going down the crapper!
  • Outsourcing

    Improving Automation? Yes, we can now automatically outsource your job.

    Improving Process Quality? The software may be more buggy, but the process to make it cheaper has very high quality.

    Improving Productivity? It is great to have no laws to protect employees. We get great productivity gains by taking advantage of cheap offshore labor which we can exploit. No 401Ks, health insurance, pension ( are you kidding ).

    I cannot believe the naive mouthpieces that espouse offshoring. First we export our manufacuring jobs. Great way around to get around enviornmental regulations, taxation, wage agreements, etc. The only people to benefit are those high in the food chain who take the extra profit and put it in there pocket. These folks have no conscience. What can you do?

    - Avoid products made in China
    - Buy American if available
    - Do not do business with companies that oursource, and be sure and tell them why!
  • It's Globalization -- Better Get Used to It.

    As much as it pains me to say it, this is the true cost of IT globalization.

    America has innovated itself right out of prominence. Over the past four decades, we've kept shrinking the boundaries of the world through more advanced communication. As the distance between countries has come to be measured in milliseconds rather than kilometers, anyone with half a brain and a "Teach Yourself Computers" book can learn enough to be marginally productive in the IT world.

    And, since it's a whole lot less expensive to hire someone in a third-world country to IT work, much of the work will go there. Never mind that the cost of living in India (or Pakistan or Malaysia or China or Russia or South Korea or...insert your favorite third-world country here...) is vastly different than that of the US. From the CEO's perspective, if you can hire someone in India for $12 an hour to "almost" do the same work that they would have to pay $50 an hour for in the US, they believe that it's just a good business decision. ("Hey...just throw four people at the problem, and we still save $2 an hour!") The CEO's job is to maximize shareholders' value, not debate the ramifications of global employment policy. And, if they boost their company's bottom line, their bonus get that much better.

    I've heard a lot of people justify widespread offshoring by saying that the people in India are as capable as the people in the US, they're just less expensive. But my experience has been that that is not the case. Perhaps I've just been fortunate enough to work with very good American IT people, or perhaps I've just been unfortunate enough to work with some very marginal offshore people, but so far, I have not witnessed any evidence that suggests that the average third-world IT worker is even remotely as skilled as the average American IT worker...plus the language barrier remains a huge problem. For now.

    But the gap WILL close. Eventually, the technical training schools in India will discover that language and communication skills ARE important. (Yes, I know that now just about everyone in India "speaks English," but the real truth is that they "speak English poorly.") Once Indian technical schools can produce graduates with adequate technical skills AND intelligible communication skills, there will be true justification for sending work there. But, by that time, the cost of wages in India will have risen to a point where it's more difficult to justify sending work there. And China will be the new place for $12 an hour labor. And the cycle will repeat itself until there is a glut if IT workers worldwide, and fewer and fewer people choose IT as a career.

    It all comes down to predicatble market forces. Demand drove wages up. Higher wages and ready availability of IT education spurred development of more IT workers in the third world. The availability of lower cost third world IT workers is redirecting the flow of work offshore. The resulting demand for workers in the third world will raise the wages there, spurring the development of low cost IT manpower in other countries. And this will repeat itself until the wages for IT are normalized...and you can bet that the new wage level will NOT be favorable to Americans. (Do you want to do IT work for $12 an hour? No? Well, there are plenty of people in the third world who would jump at the chance.)

    The bottom line is: This is a growing pain of the global economy. It sucks to be in the US right now, since we're on the trailing edge of the high demand of the 90's and early 00's. US innovation created the industry in the first place, and now that it's matured, everyone is jumping on the gravy train.

    My question is this: Where will the next round of innovations come from? India? China? Somalia? Yeah...right.
  • Outsourcing. CEOs Looking Out Only For Themselves

    As one who is currently searching for a position, I have found it extremely difficult to reconcile the needs of a corporation versus the needs of the country in which that corporation resides.

    We all know through the many, many high level staff meeting we?ve all attended in the past that companies are in business to make a profit, not worry about the employment and well being of their employees. That is the axiom we all take to heart whenever we work for anyone. As the owner of the last engineering firm I worked for use to say (almost as his mantra) ?At the end of the day I owe my employees nothing besides pay. They on the other hand owe me loyalty and respect for taking them in and letting them work for this company.?

    As outsourcing takes off, I wonder how many people really understand why these previously ?third world? countries came ?on line? so fast. The reason is simple. US CEOs went looking for cheaper labor markets in the 1990s. They poured million and millions of dollars bringing the infrastructure of these countries into the 21 century. They invested in their educational and healthcare systems (in the name of charity of course). And when the fruits of their labors had blossomed, these ?Captains Of Industry? sent jobs away from the country that allowed them to prosper in the first place.

    And these CEOs did it for themselves. Not for the stockholders. But for the upper execs at these companies. Need proof. Even as the stocks of most of these firms take a dive, the pay for the top guys continues to grow because of cost savings. They sell their options at a pre-approved price and reap the rewards. The company does turn a profit because of the constant push to move higher and higher levels of workers offshore and driving operating costs down, no matter what it does to the long turn health of the corporation. And even when they do an abysmal job as CEO, they walk away with ?. I dunno?. $41 million.

    We have even read here on ZDNET about SEACODE, a company that will be purchasing cruise ships, fill them with workers from India, China, etc., and park the ships three miles out in international waters so as not to have to pay these people the same wage they would in the US. SEACODE will be able to offer proximity without the undue burdens of having to adhere to those pesky fair employment laws. American companies are already lining up to do business with SEACODE.

    What no one in the boardrooms of these companies seems to get is that not everything is for sail. And there are countries that mean to do us (financial) harm. We send all of our technology innovations overseas to places where people hunger for a better life, and we are surprised (as one of my clients was recently) when our technology is repackaged and sold all over the world. US companies reap huge profits without reinvesting in the country that gave them their prosperity. CEOs are only beholden to themselves and no one else. And we will be living in one of the poorest countries within the next 100 years if we don?t do something about it now.
  • No non-bias ppl on the panel?

    let's see, three CEO's and a guy who's job depends outsourcing being a good thing.

    Cheap labor = buggy programs

    but it makes all the admin ppl feel like they can finally control the development process.

    Outsourcing can be good in some areas, such as data entry tasks, though I have to deal with overseas data entry hassles. A simple mistake takes a day minimum to correct. And Programming? OMG! I ended up debugging and sending them the code changes, and everyone said the outsourcing was a success! WTF???!!!!

    I'm listening to these guy now...I love the way these guys speak. They can tell you it's a good thing if they kill your grandma and make it sound good. They are trying to soften the work "Outsourcing" when the basis of the conversation is sending work overseas. Now the guy says that's "OffShoring" not simply outsourcing, and so is outsourcing caffeteria food.. whatever...

    Now some India guy is pimping who he should be testing, and maintaining old applications. Good marketing idea..well tell you how bad your programmers are so we'll look like we can actually program better. Trust us, and if we can maintain old stuff that hardly changes, they can surely maintain, evolving applications when management can't make up their minds and change things on a weekly and sometimes daily basis.

    ugh! I hate outsourcing. From and admin side, it's sweet. From a tech side who get left cleaning it all up, it totally sucks.

    Oh and if they get rid of their programmers and outsource, they fall into that I can't complain, because it was my idea and they go around saying how great this new thing is.

    I'm done for now.
  • RE: Outsourcing: Sorting Out The Hype, Reality, Risks And Benefits

    I think that outsourcing manufacturing and I.T. jobs is what is crippling this economy. I believe there is room in the marketplace for International trade and outsourcing of some intellectual property jobs, but we have manufacture things in America and keeps jobs.