Trend: Outsourcing

By Elizabeth Wasserman  |  Posted 10-01-2003 Print Email
Commoditization has come to information technology. More and more companies are outsourcing IT work, and new technologies mean fewer IT people will be needed to keep corporate systems up and running.

In May, after Hewlett-Packard Co. beat out IBM Corp. for the privilege of taking over the computer operations of Procter & Gamble Co., a deal worth $3 billion over a ten-year period, the 166-year-old Cincinnati-based consumer marketing giant tried making a virtue out of cost-cutting necessity. Announcing that nearly 2,000 technology workers would be leaving P&G, where many had hoped to make lifelong careers, all 2,000 of them would be offered jobs at H-P, at comparable—and sometimes greater—salaries. Managers touted H-P's ranking among Fortune magazine's "Best Companies to Work For" and Working Mother magazine's "Top 100 Best Employers for Working Mothers." As part of the contract, P&G insisted that H-P agree to multiyear job protection provisions for the erstwhile P&G employees in the event of downsizing.

Executives at H-P and P&G say finding the right corporate fit for P&G's IT workers was a major priority in the negotiations, because it was crucial to keep morale high among staff during and after the transition. "It's always a difficult choice," says P&G spokesman Damon Jones. "At the end of the day, we have 2,000 employees who chose to work for P&G and now we're asking them to make a shift and work for another company. P&G is a promote-from-within company. They thought of themselves as having careers here. But when people saw the way we executed this deal, they knew we were trying to do the best thing."

The workers saw the writing on the wall. They knew that if they didn't accept the H-P offer, they would be out of work in the worst economy for technical workers in a generation. Every single one of the U.S. workers accepted the new reality for IT workers and went the H-P way, according to a company spokesman. In fact, some IT employees who weren't scheduled to make the switch actually requested it, according to other sources. "Employees inside the company were looking at an environment where other companies were sending jobs overseas and they were saying, 'This looks like a pretty good choice,' " said Paul Roy, partner in the outsourcing practice

at Mayer, Brown, Rowe & Maw LLP, an international law firm, who represented P&G. "If you want to be the manager of the SAP system or run the telecom system, there are only one or two slots at the top at P&G. But if you are working for a vendor who provides many of these services for many different companies, many slots open up."

True as that may be in the short term, the long-term outlook for IT employment in the U.S. is bleak. A mere five years ago, demand for IT skills was so strong that many were pulling down six-figure salaries, stock options and—occasionally—a sports car as a bonus for signing with the exceptional Silicon Valley startup. But now, IT workers are being increasingly compared to the displaced autoworkers of the 1970s. Or worse. Ben Catanzaro, 59, who worked for Sun Microsystems Inc. for 13 years (and for Intel Corp. before that) was laid off in Oct. 2001 and has just about given up on information technology. "My dad used to tell me about the sweatshops of New York when he came here in the 1940s," says Catanzaro, the son of Italian immigrants. "High tech today is what the garment industry was in the 1940s and 1950s. Here is all this cheap labor from India and Asia and companies are reaping the benefits. Companies are also outsourcing more and more, leaving American high-tech workers with nowhere to work. I decided I needed to go do something else." Catanzaro finally found a job as a design consultant for a solar energy technology firm, but that ended within a few months thanks to poor sales.

According to a survey earlier this year by the Information Technology Association of America, a Washington, D.C., trade group, the total IT workforce in the U.S. peaked in 2000 at 10.4 million jobs, then shed more than a half million jobs before bottoming out last year at 9.9 million jobs. While some of those jobs have returned since then, the more robust rebound everyone is hoping for may never come. The survey found that managers have cut projections for adding staff this year in half. The reasons are myriad: the sluggish economy, the dot-com bust, a lingering hangover from the Y2K tech overdose and a growing sense that corporations now have alternatives to the highly skilled—but highly priced—U.S. IT worker.

Corporate America is beginning to experience a sea change in its attitude toward information technology. In increasing numbers, routine programming and business processes are being sent offshore to lower-paid but highly trained workers in other parts of the world. Technology platforms are being standardized, with fewer IT workers needed to plug-and-play any number of more and more sophisticated systems. The rise of computing as a utility, which like electricity or water can be paid for on an on-demand basis, will shift more corporate IT jobs to services companies, which themselves are threatening to send jobs overseas. H-P itself has facilities in India, China, the Philippines, Costa Rica and Poland.

On the horizon is a push toward what's being called autonomic computing, where systems autoconfigure and self-correct, theoretically freeing up IT workers from routine chores such as system administration. But some question whether that's just another way for corporations to further downsize IT staffs. "It's going to take a lot of people out of running the infrastructure," says John Parkinson, chief technologist for the Americas at Cap Gemini Ernst & Young. What is happening today in computing is comparable with what happened with the telephone system in the early 1900s. "When they first looked at residential telephony, they said they couldn't hire enough switchboard operators to make it work," he says. But once the automatic exchange was invented, most of those operators had to find other work. Parkinson estimates that the current trends in computing have the potential to cut IT infrastructure costs as much as 50 percent, including up to one-third of the IT workforce in developed countries.



 

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