When it comes to the future of American IT staff, past is prologue. The current trend toward sending some IT work offshore actually began a decade ago, when stateside outsourcing began to gain favor. Companies such as Xerox inked multimillion dollar deals sending their IT work out the door to outsourcers. Some believed that the rise of the EDSs and CSCs would mean the fall of the in-house IT staff. That didn’t happen, but today, with offshore outsourcing, IT workers are not simply shifting employers but in many cases losing their jobs altogether. And at many levels -- lower-end programming, call center tasks, system maintenance and help desk work -- that trend will continue.
"Commoditized work will go overseas," says Peter Cappelli, director of the Center for Human Resources at The Wharton School of the University of Pennsylvania. "Some more creative work -- like non-commodity one-off and unique projects -- will go overseas. But where interface with the business is important, that work will remain here."
It’s hard to argue for keeping certain IT work stateside. The salary for a programmer with two to three years of experience averages $7,500 in India, according to NeoIT, an offshore consultancy. In Russia, it’s $10,000. In the United States, it’s $65,000. India graduates 75,000 computer scientists each year. The United States, 52,900. China, which currently brings 50,000 new IT workers into the world every year, could eventually provide 200,000 computer science graduates annually, according to Marty McCaffrey, executive director of Software Outsourcing Research.
Bandwidth costs have declined dramatically and should continue to dip, furthering the beneficial cost structure of transoceanic work.
"What will continue to go overseas are the repetitive activities, the things that will ultimately be automated anyway," says Nancy Markle, president of the Society for Information Management (SIM) and former Arthur Andersen CIO. "We have to be able to continue to get the best prices, or else we’ll be growing companies offshore instead of competing with the rest of the world."
What Jobs Will Stay
By 2008, the IT workforce situated in the United States will be 25 percent smaller than it is today, according to Gartner. But the workers who remain will be more important to the business than ever. They’ll be working on architecture, strategy, project management and business processes, predicts Lance Travis, vice president of outsourcing strategics for AMR Research.
"A standardized problem can be solved anywhere," says N. Venkatraman, chairman of Boston University School of Management’s IS department. "But if you need to understand the business and create value, you must be here. It’s very difficult to understand the business context of IT remotely." Supporting a new product launch, for example, requires close observation and fast response --both impossible if the work is done halfway around the globe.
"If it can be codified, it can be done remotely and supported by IT," says Travis. "If it is still tacit and requires a lot of unstructured discussion, then it must be done here."
That need to keep certain activities close to home is one reason why many high-level IT jobs will remain in the United States. Speed and ease of management are two other factors. "Offshore outsourcing ultimately represents a certain loss of control," says Travis. "It is very dependent on the ability to manage relationships, and you always give up some agility." When CIOs outsource development to India, for example, it’s much harder to make changes to projects. "Anything beyond the scope of the project is impossible, unless you want to pour more money into it," says Travis.
Infrastructure, security, communication and project management issues already erode some of the cost advantage of offshoring, says Larry Pickett, CIO of Purdue Pharma. If CIOs try to go further up the value chain -- sending high-level consulting services elsewhere, IT will be even more difficult to manage, he says.
The IT department at Sun Microsystems is a test case for the future. "I have a staff of IT people around the world," CIO H. William Howard says, rattling off cities from Bangalore to Beijing where his IT staff resides. "Any large company is going to position their workers where the talent exists at the best price." Howard employs about 75 percent of the IT staff he used to. By 2010, he expects to outsource 50 percent of noncore activities. He adds, "Does that mean everything will be offshore? No. The things that are core, that are tightly tied to business process and the local business community, won’t."
However, John Watkins, CIO of Fairchild Semiconductor, views IT as an enabler of his business and only offshores on a limited, case-by-case basis. "It’s that intellectual capital we need to protect, especially when you’re as integrated in business processes as IT should be," he says.
Similarly, Cingular CIO Thaddeus Arroyo sends 10 percent of his IT work (mostly maintenance work) offshore. But he retains a U.S. staff to keep "new and more complex development close," from application development related to business process improvement to the integration and customization of off-the-shelf software. Arroyo makes these decisions project-by-project, considering such factors as capability and capacity of his U.S. workforce, the strategic nature of the work, and how closely tied a specific project is to other enterprise applications within the company. And by 2010, he says, CIOs will need to be even more judicious about what they send out the door.
"As we come out of the downturn, there will be even more potential for IT to become the business differentiator," says Arroyo. "Offshore outsourcing simply allows us to remain productive so we can deliver innovation here." In addition, the inevitable rise in labor costs in India, Russia and elsewhere could further reduce the cost advantages of offshoring.
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