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IT Outsourcing

Scourge or Salvation?

Whether you think it's the key to your company's future or the curse of the IT workforce, one thing's for sure: Outsourcing is a hot topic in the IT industry. Almost everyone has a strong—and we mean strong—opinion about the practice. The Windows IT Pro Industry Survey asked you to tell us whether your company outsources or plans to outsource IT jobs, who makes that decision, what type of jobs are being outsourced, where (geographically) the work is going, whether you're worried about your job or the job of someone you know—and what you think about the whole thing. Is outsourcing a passing fad—or does it make you want to throw in the towel and change professions?

Reality Check: Is Outsourcing Friend or Foe?
According to our survey, 35.9 percent of you work for companies that currently outsource IT jobs; 9.4 percent work for companies that plan to outsource. That's a fairly high percentage. Before you reach for the whiskey, though, consider this: These figures don't necessarily equate to lost jobs, simply to subcontracted jobs. Although some companies do replace in-house workers with contracted employees, other companies use outsourcing to expand operations or to free up overburdened IT staffers.

Katie Sullivan is an MCSA and an IT specialist with Landmark National Bank in California. As she notes, "I am the entire IT department for this small community bank. I wear a variety of hats (e.g., network security, hardware, software, IT policies, telecommunications) but don't presume to be able to do everything. My ability to do my job is definitely enhanced by the ability to hire expert outside help. My company is very responsive to my suggestions regarding the outsourced IT staff with whom we deal, and my experience with outsourcing at this company has been generally positive. Because there's so much competition for outsourcing companies, I usually find that they're quite willing to deal with me in a positive manner."

Still, there's no denying that outsourcing does mean downsizing for some companies. Several of you told us that you'd lost work because of outsourcing, or that you knew someone who had. One network administrator told us that she ended up at her current job because "my last company outsourced 90 percent of its IT jobs to India, Canada, and some US states. Lots of people lost their jobs; no huge severance packages where given. I lost my home, and my children had to leave their schools—my family was almost devastated by my loss of employment. I had to take a $12,000 salary cut and I'm still struggling to keep afloat." A senior analyst with a major US oil and gas company is facing a similar experience. He told us, "In 1998 there were more than 2000 \[IT employees\] in my building. By this time next year, there will be less than 200 left. All jobs are going offshore."

These stories show two sides of outsourcing. Is it a benefit or the bane of today's IT pro? Don't go to the experts for definitive answers. Industry studies and research firms report contradicting figures. For example, on the pro side, a recent study conducted by the economics consulting firm Global Insight (and commissioned by the Information Technology Association of America—ITAA) suggests that offshoring of IT jobs actually increases productivity, consequently increasing corporate profits and leading to corporate expansion and the creation of new jobs. On the con side, not all those new jobs will be in the IT industry (and other experts have expressed doubt as to the study's conclusions). Pro: The US Bureau of Labor Statistics (BLS) reports that offshoring of US jobs during first quarter 2004 accounted for only 2 percent of the jobs lost during that quarter. (Most of you clearly looked upon offshoring as a bigger threat than local outsourcing, but the BLS report claims that local outsourcing was responsible for twice as many lost positions as offshoring. See the sidebar "When is Outsourcing not Outsourcing?" for a discussion of the difference between these two types of outsourcing.) Con: Forrester Research concludes that about 3.3 million US business services jobs will be offshored during the next 10 years.

Still other researchers claim that it's difficult to get a clear picture of whether IT job and wage losses over the past several years are the results of increased outsourcing or simply a hangover from the IT slump. And the strange state of the US economy, which continues to report growth—but without showing a correlating increase in employment—doesn't help to settle anyone's nerves. In fact, some sources blame offshoring for the discrepancy. (Interestingly, a Business Week special report pointed out that "The real culprit in this jobless recovery is productivity, not offshoring"—which, if the Global Insight study is to be believed, might be the same thing.)

One thing that observers do agree about is that outsourcing "will clearly be a powerful source of structural change in labor market dynamics over the next decade" (Business Week). Unsurprisingly, the majority of your comments expressed concern with outsourcing (and especially offshoring). But it wasn't top on your list of concerns.

Don't Bring Me Down: How Worried Are You?
At first glance, the majority of you aren't particularly worried about the safety of your job or the jobs of others at your company, at least not because of outsourcing. Nearly 75 percent of respondents told us that they either aren't very concerned or aren't at all concerned about losing their jobs to outsourcing; nearly 69 percent don't think it likely that anyone at their company will lose a job for that reason. Not surprisingly, these numbers are lower for those of you whose companies are actually planning to outsource (only 56.8 percent aren't concerned for their own jobs) or already outsourcing (66 percent aren't concerned for their positions, presumably because any cuts have already occurred). In general, you feel your best approach for dealing with the outsourcing trend is to keep your skills strong and your nose to the grindstone. As one systems/network admin noted, "Obviously it stinks for those workers who lose their jobs to it. But overall, it may be a good thing because it may be pushing IT workers to grow in their skills and develop new skills to survive."

Still, we'd be lying if we didn't point out that outsourcing does have a measurable effect on your morale. Although most of you seem fairly pragmatic—several respondents mentioned that outsourcing these days is simply "a fact of life;" others see it as an economic trend that's bound to run its course—respondents whose companies outsource positions worry more about dealing with staff reductions, job security, and (of course) outsourcing issues. These folks also display more concerns with a lack of IT management direction and are more likely to believe that management is taking the company in the wrong direction. (See the graph "What, Me Worry?" for specific comparisons.) And perhaps most telling, more of them are actively seeking a new job (21 percent compared with 18.2 percent of respondents at non-outsourcing companies) or open to new opportunities (39.6 percent compared with 37.1 percent). Management, take note: If you're worried about losing your top IT people, it's safe to say that although outsourcing might not destroy morale, there will be a cost, measured in employee satisfaction, stress, and loyalty.

The amount of nail biting you've been doing also varies widely depending on your job. Only 18.4 percent of executive and IT management (i.e., president/owner/CEO/CFO/CIO/CTO or IT director/IT manager/purchasing manager) told us that they were worried about losing their jobs to outsourcing. (This isn't surprising, considering that at least half of you reported that these are the folks who make the decisions when it comes to whether to outsource.) Systems and network administrators are slightly more nervous, with nearly 27 percent reporting that they are somewhat or very concerned. Thirty-eight percent of application developers and 39 percent of Help desk personnel reported being concerned, and nearly 54 percent of Web administrators are losing sleep over outsourcing. In nearly every case, stress levels go up if the company is already outsourcing or planning to outsource.

So how on-the-mark are these concerns? Which jobs are being outsourced, and where is the work going?

Take This Job: Which Jobs Are Being Outsourced?
Over the past decade, programming jobs have been by far the most popular type of outsourced work. However, our study indicates that outsourcing now affects a broader range of industry segments. Programming is still the leader, with 59.8 percent of respondents reporting that their companies outsource programming jobs. Most people have noticed a rise in outsourced Help desk and customer service positions as well, and sure enough, 37.2 percent of you reported that your companies send these jobs to outside workers. Surprisingly, though, 40.9 percent of respondents outsource their IT infrastructure planning and design. In general, it appears that most companies that outsource don't just outsource one type of job. For example, of US companies that outsource IT infrastructure jobs, fully half of them also outsource programming work.

Where are these jobs going? From your comments, many of you have dealt with or heard horror stories about customer-service support that's been transferred outside your home country, but in reality the majority of outsourced jobs are staying close to home. This is especially true for our Canadian respondents, all of whom reported that at least some of their outsourced IT infrastructure and Help desk jobs are going to other Canadian workers; 87.1 percent of outsourced Canadian programming jobs are staying within that country.

European IT pros came in second as far as using local outsourcing. According to our survey, nearly 79 percent of European IT infrastructure jobs, 68 percent of outsourced programming jobs, and 76 percent of Help desk jobs are being outsourced within Europe. (Our figures only specify that the work remains within Europe, not necessarily within the respondent's home country.)

Though they came in third, the majority of US workers (who also expressed the most concern with the practice of offshoring) nevertheless reported that their companies' outsourced jobs are remaining within the United States. US survey participants reported that 76.6 percent of outsourced infrastructure jobs, 64 percent of programming jobs, and 62.5 percent of Help desk jobs are going to other US workers.

India, which is becoming well known as a source of offshore IT labor for many North American and European companies, seems to deserve that reputation. Canadian IT pros told us that 8.5 percent of their outsourced programming jobs are going to India; European respondents reported that 13.5 percent of infrastructure jobs, 30 percent of programming jobs, and 23.9 percent of Help desk jobs were being transferred there; for US respondents, the numbers are 22.9 percent of infrastructure jobs, 43.2 percent of programming jobs, and 53.6 percent of Help desk jobs. (Note that the percentages of US Help desk jobs that are remaining within the United States and that are going to India add up to more that 100 percent because of an overlap in the types of jobs being outsourced.) Survey participants from North America and Europe all reported Canada, Europe, and the United States as other popular offshoring locales.

What Lies Ahead: Looking Forward
Stability. It's something the IT industry hasn't seen much of in a long time. The "outsourcing issue" sometimes seems to be just another notch in a long trend of belt tightening. A practice that can be traced to the Industrial Revolution will probably never go away, but will outsourcing continue its steep ascent to the top of the budget-cutting food chain? Perhaps. But many companies have ended up bringing outsourced services back in house after outsourcing failed to produce the expected results. (See the sidebar "But Does It Work?" for more discussion about the sometimes-unexpected costs of outsourcing.)

Regardless of whether outsourcing continues to gain popularity or finally falls by the wayside, the majority of our respondents seem ready to make the best of the present—more than 73 percent of IT pros whose companies outsource or plan to outsource would still recommend IT as a career. Most of you agree that as with any other professional challenge, flexibility, determination, and skill-building are the keys to handling outsourcing—whichever part of the world you work in.

See associated figure — Does Size Matter?

See associated figure — What, Me Worry?

See associated figure — Say It Isn't So

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