Outsourcing March 2006: Can an Anxious IT Organization Be Productive?

By Allan Alter  |  Posted 03-06-2006

Outsourcing March 2006: Can an Anxious IT Organization Be Productive?

When Chase-Pitkin Home and Garden outsourced part of the development work on a Web-based order-entry system two years ago, things didn't go as smoothly as the company had hoped. According to T. Christopher Dorsey, then-CIO and controller at the Rochester, N.Y.-based home-improvement division of Wegmans Food Markets Inc., "It's fair to say the internal IT staff didn't go into it with an open mind." In-house staff provided partial answers or avoided giving answers at all, when the outsourcers asked questions about which files contained certain data or the file structure. It turned out that IT staff members were dragging their feet because they were afraid they would lose their jobs once the new system was in place. When they learned that they, and not the outsourcer's employees, would manage the new system, and that they would be taught the new language it was written in, the tensions lessened. says Dorsey, who is now vice president of IT and strategy at Rochester-based Constellation Wines U.S., part of Constellation Brands, Inc., a $4 billion wine and spirits supplier.

Troublesome incidents such as this are playing out at more and more U.S. companies, judging by the results of CIO Insight's latest survey on IT outsourcing. As the use of outsourcing and offshoring increases, so, too, does outsourcing's toll on IT personnel and their productivity. Forty-five percent of respondents to our survey say that fear of losing jobs to outsourcing has had a disruptive effect on their IT organizations, an increase from 39 percent last year.

How does outsourcing disrupt an IT organization? The simple answer is the FUD factor: People who are afraid of losing their jobs are less productive, either because they are feeling anxious, or because they are less motivated to put in extra effort. "Why would I bust my butt for my company if I know they are going to outsource my job and get rid of me?" asks Jay Jamrog, executive director of the Human Resource Institute, in St. Petersburg, Fla., a not-for-profit organization affiliated with the University of Tampa.

According to Tom Weakland, a managing partner in the global sourcing practice at DiamondCluster, low morale makes people less careful, or thorough, and that results in project delays, budget overruns, and post-implementation breaks and bugs in code. "Whereas you might have a great relationship with Joe, who sits right next to you in a cube, when suddenly "Joe" is writing code in Bangalore, you are not going to call him as proactively, or get him involved as much. You will treat him differently if you are afraid of losing your job, or if your friend lost his job," Weakland says. Marcus Courtney, president of WashTech/CWA, in Seattle (an arm of the Communications Workers of America), recalls his days as a contract worker at Microsoft Corp. Time-zone differences made collaboration difficult, Courtney says, when he tested code written by developers who were thousands of miles and several time zones away. Transferring knowledge between employees and the outsourcer is another trouble spot, he adds.

Open, honest communication is the first and most obvious solution to the problem. But sometimes what CIOs have to say-no matter how honestly, openly or thoughtfully-isn't what IT professionals want to hear. So what else should CIOs do to keep their staffs motivated and productive when they outsource? HRI's Jamrog says IT professionals are most likely to remain committed and motivated if the company continues to train them to do the sort of innovative, creative work that is less likely to be outsourced, offers them challenging, interesting projects to work on, and if their supervisors inspire and coach them. "They [IT professionals] will be very loyal and committed to a supervisor who treats them well, is inspiring and motivating, and communicates with them honestly and openly. In other words, a leader."

ZIFFPAGE TITLEFinding 1


Finding 1: Spending on outsourcing is picking up at large companies. Outsourcing remains as widespread as last year, taking up about 20 percent of the IT budget. But while outsourcing spending is increasing by just 2 percent at small and midsize companies, it is growing at 5.4 percent at companies with over $1 billion in revenues. However, while most respondents express satisfaction with their vendors, outsourcing customers are less satisfied than they were a year ago. The outsourcing services that are most criticized are help-desk, security, infrastructure and project management.











Finding 2: Offshoring is growing in popularity, but satisfaction with offshore firms lags behind domestic outsourcers. The percentage of companies that offshore rose by about 25 percent in the past year. However, offshore outsourcers lag behind domestic outsourcers in satisfaction, value and earning their customers' trust. Not all offshore outsourcing is winding up in India. China, the Philippines and Brazil are becoming more popular outsourcing destinations, while many large companies are nearsourcing to Canada and, to a lesser extent, Mexico. Clearly, companies are finding greater value in diversifying their outsourcing portfolios.

Finding 3: Employees' fears of losing their jobs to outsourcing is a growing problem. In this year's survey, a higher percentage of respondents than last year report they are eliminating full-time IT positions as a result of offshoring. Not surprisingly, more IT executives also say their employees' fear of losing their own jobs is having a disruptive impact on their IT organizations. This is true even when companies are dissatisfied with their outsourcing vendors; IT staffers don't believe their company will stop outsourcing as a result. CIOs need to work harder and smarter about managing their staff when they outsource.