Over There

By Elizabeth Wasserman  |  Posted 10-01-2003 Print Email

Over There
The most forceful driver behind the shifts in IT staffing is the so-called "offshoring" of IT work, whose appeal in corporate boardrooms and on Wall Street is growing. A Gartner report forecasts that by next year more than 80 percent of U.S. executive boardrooms will have discussed offshore outsourcing, and more than 40 percent of these enterprises will have finished a pilot, or will be outsourcing IT services either offshore or "near shore"—somewhere on the North American continent. Even companies that choose to outsource IT functions domestically with one of the growing technology service powerhouses—among them IBM Corp., EDS Corp. and now, with the P&G contract signed, H-P—wind up augmenting the offshoring trend. Many of these services companies operate subsidiaries overseas to provide lower-cost alternatives to applications development or maintenance services, or farm the work out to the growing number of emerging tech markets around the globe. IBM's plan to accelerate efforts to move up to 3 million white-collar jobs overseas caused a backlash after a recorded conference call by the company's top employee relations executives was leaked to The New York Times in July. According to the Times, the executives said that the jobs would shift to foreign workers by 2015 partly because competitors were making similar moves, shifting an assortment of service-sector jobs—from call-center operations to software design—and business processes themselves to India, China, the Philippines, Russia and an assortment of other countries that want in on the action.

To find the corporate rationale, look no further than the bottom line. A recent research report by Deloitte Consulting estimated that the financial-services industry will send $356 billion in expenses offshore within the next five years (though that total includes more than just IT jobs). According to the report, this will translate into an annual cost savings of $138 billion for the world's top 100 financial-services companies by 2008—an average of $1.4 billion each. By those calculations, savings for the top 20 percent could be two to three times as big. "It's not only some of the big players—GE Capital and American Express Co. and Citibank. Virtually every financial institution is now engaged in [figuring out] how to reduce fixed costs by going offshore," said Chris Gentle, a Deloitte director of research and author of the report.

But what's good for corporate America isn't necessarily good for the professionals who run the IT operations. In the long run, many IT workers in the U.S. may have to retrain or leave the field. Global head count migration will be significant. Deloitte's study estimates that 2 million of the 13 million worldwide financial-service jobs will be relocated, primarily to India and Southeast Asia. A Gartner study in July looked at the U.S. computer services and software industry and estimated that one out of every ten jobs could shift to lower-cost emerging markets by the end of 2004. Gartner's report, "U.S. Offshore Outsourcing: Structural Changes, Big Impact," forecasts that 500,000 of the current 10 million U.S. technology jobs could move within the next year. "In our view, offshore outsourcing is an irreversible trend," said Diane Morello, a Gartner research vice president in the IT management sector. "Even when the economy rebounds, it is unlikely to bring those jobs back."

That permanence is finally starting to sink in with Tom Kilborn, 49, a father of three who lives outside Oakland, Calif. Kilborn lost his job as a Cobol programmer in December, shortly after Bank of America, his employer of 16 years, signed a ten-year, $4.5 billion deal with EDS to outsource management of voice and data networks and move to more flexible operating platforms. Kilborn wasn't among the 1,000 employees who were transferred to EDS. "In November, they told us about the advantages of global development," says Kilborn. "How the bank could save money by employing people from India, and how the workers in India could be working on programs while the IT staff in the States were sleeping. The person from HR said that by 2008 there would be a real need in this country for people with IT skills. Then, at the end of his message, he told us there would be more layoffs because of the budget." Kilborn is now getting certified as a network administrator to better his chances of finding a job. "Five years ago everybody wanted you, and now it's hard to find a job," Kilborn laments.

This paradox has implications up and down the food chain, from the people who benefit from greater choices and lower costs in IT services, to the people who are displaced, to the people who remain working at companies going through change. IT workers need to reassess their skills. "People who have only a technical toolbox are at risk," says Gartner's Morello. "They can build their value through understanding of business process through issues associated with enterprise objectives, knowledge of the business, things that are associated with the industry or business."

That understanding of how technology can help the business is even more crucial for CIOs and IT managers. "Previously, you had people who were 70 percent focused on the technology and maybe 30 percent focused on business," said Kim Perdikou, CIO of Juniper Networks Inc., a Sunnyvale, Calif., networking firm. "Most people are seeing a shift. The swing is probably to 70 percent business and 30 percent technology. And you're seeing a number of CIOs who are not technologists. They are businesspeople taking on the job of CIO because other executives don't feel the people they have been talking to in IT have any comprehension of business."

When American Express entered into a seven-year, $4 billion contract with IBM in early 2002, the company had to set up a new governance structure to manage the deal—made up of the CIO, senior vice president for IT, global corporate services president and others. Steve Karl, AmEx's senior vice president for IT, said his job has changed dramatically, becoming more about managing relations with vendors and within AmEx, and ensuring that the contract delivers what the company needs.

American Express, which is 18 months along in its contract, realized some immediate cost savings after the economy slowed down at the end of 2001 and the company was able to benefit from the flexibility in its contract to ramp down. The flip side of that was experienced by some of the 2,000 AmEx workers who were hired by IBM as a result of the agreement. Some of those employees—AmEx won't say how many—were laid off by IBM during the downturn. But now, Karl says, the company is poised to test whether the promise of utility computing can work on the other end as AmEx forecasts an upturn in its business and IT needs. "We can't assume that because we handle downturn economics," Karl notes, "that we're structured to ramp up quickly and be able to deploy technical resources. We're making sure right now that we do careful planning."



 

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