Society and Business are like water and oil.. the CxO's needs to improve their business and profitability, each company is a small world. The society responsabilities are for the government as well.

posted March 6, 2008

Yes they should, I realize that CEOs and CIOs are not responsible for the woes of society (i.e. no good paying jobs left in America), however if the standard of living of the companies' consumers drops so does thier ability to consume products and services. So, if a company sells the majority of its products and services in India, then its probably a good idea to put tech support positions in India. But, if your consumer base is in America, its probably a better long term solution to keep your consumers employed...

posted March 6, 2008

Some quick thoughts in stream of conciousness to help kick this off... IT workers were rabidly seeking their NEXT gig for bigger dollars and stock options in a moonshot IPO during the Y2K and dotcom runup. We all saw resumes that had more stops along their career path than the A Train local. Few workers stayed put long enough to add value or build any "soft equity" in their positions, and to a large degree that made many workers expendable when the sh*t hit the fan. Loyalty cuts both ways and in the end the work still has to get done. As things picked up we saw hiring patterns change and outsourcing take off - a function of the "fool me twice, shame on me" syndrome. The CIO shares a fiduciary responsibility with the CEO and throttles engines on demand. IT jobs were impacted as a result and in a wild generalization I think we brought this on ourselves.

Your question also drives the following consideration... we living in a time of much talk regarding "greening" and eco-friendly, planet saving solutions. And we haven't figured out what the long/short cost implications of that really are (tho we're getting better) regarding payback/ROI. I believe we owe it to ourselves to think about the human consequences of our labor supply and demand model as well as the eco consequences. Nice to save the planet for sure, but it's good to try to do our best to save those closest to us along the way. Tagging human value is not a pure numbers game and we can't replace real people with placeholder budget lines and have it ever make any sense. We have to feed the machine, but feeding the machine has it's consequences... at some point we come to what I call "Heston's Conclusion" - namely that "Soylent Green is People!"

Focusing on quarterly results is fine, and shareholder value is important, but reactive behavior driven by knee jerk financial requirements has a debilitating effect and drives down value long term. Witness how our economy and stock market now operates in "yo-yo mode" as a result. Short term gain is short sighted. And what goes around comes around. Outsourcing is just a part of the cycle. So we saddle up and cycle on.

posted March 6, 2008

In my view, yes, they should. And it's not just IT services. The implication of all off-shoring needs to be thought out. But unfortunately, CXO's don't have the incentive to do that. Probably they have every incentive not to that as long as their paychecks and bonuses/packages come in in millions and millions. I have asked a similar question on LinkedIn about CXO pays and am shocked to learn that lots of people here think their pays are reasonable. I am not sure why Japanese and European CEO's are not getting the same kind pay but doing the same kind of job. Maybe we should outsource CXO jobs to asia and europe too?

posted March 6, 2008

This is a tough question. Executives should defenitely consider the implications of outsourcing but if some companies didn't outsource they would not be able to compete in the global economy.

I remember seeing a report a couple of years ago, which examined the impact of outsourcing manufacturing overseas. The report found no net job loss, i.e. for as many jobs that were lost due to outsourcing, just as many were created.

I haven't seen any unbiased research/publications about IT outsourcing. Some either show it as very negative, others show it as being very good for the economy.

posted March 6, 2008

To build on what Chris Furey said...

It is a cycle and one thing we don't know about yet about off-shoring
is how the knowledge drain (jobs here being replaced overseas) will
impact business and the bottom-line.

There is a great deal of knowledge that goes out the door when IT is
outsourced and without long-term, strategic partnerships with those
offshore providers, everyone back state-side needs to be aware that
they may need to train multiple different offshore vendors because a
new deal was made to save money. Trouble ensues when companies are
constantly losing the knowledge expertise in their systems. "Tagging
human value is not a pure numbers game "

As with everything else in life, there needs to be a balance between
what stays and what gets outsourced. A company's strategic advantage is found in the product or knowledge to produce/support it, not in its price.

posted March 6, 2008

They definitly should, but they definitly won't.

In many ways the world has come together into one unit. The process is not complete, and its far from smooth, but its well on its way.

Jobs have moved between states in the US for decades, maybe centuries. Today national governments are becoming equivalent in level of authority to the amount of authority we have associated with state governments in the past.

Arguing that jobs should not move from the US to India is starting to sound like arguing for jobs to not move from New York to North Carolina.
Its not a perfect analogy of course.

You have obligations to the US as a citizen and a right to expect certain protections and rights in exchange. Not to mention history, many of our fathers, grandfathers and great grandfathers fought for this country in WW1, WW2, Korean, Vietnam, so I think there is a strong rational argument for saying that the US owes something to its citizens.

Thats all political, and moral, but I'm afraid that economic forces are more powerful than political forces or even morality.

Honestly I would just like to see a company's PR be consistent with its actions. If it offshores jobs then I don't think it should mention social responsibility or community service in its PR.

posted March 6, 2008

CEO's and CIO's are not in the 'social engineering' business. They should and typically do focus on the needs of the business. Offshoring can produce a very visible reduction in the cost of services. That said, they should also be very cognizant of the less visible costs of offshoring, including the increased management overhead required to ensure quality results, and the erosive effect on their internal competencies. Meanwhile, as they weigh these things with the shareholders in mind, perhaps the tie should go to the American worker.

posted March 6, 2008

CEO's job is to maximize profit to shareholders. Anything else and they are not doing their fiduciary duty. (The question may be if offshoring IS helping their companies. I personally think that for many roles offshoring is losing its financial appeal.)
Offshoring is a matter for citizens. If they care about it, then, presumably, Congress and President should institute policies where the offshoring will be less beneficial to companies, to decrease the amount of it. That assumes that Congress and President care more about working Americans than wealthy shareholders.

posted March 6, 2008

Hi Bob --

This is a dead horse. If anything has been accomplished by the "globalization" of the workforce it has been the removal of any doubt that business respects nothing but profit and will do anything to anybody to maintain same. And by business I mean those people who direct the actions that hurt their own homes and neighborhoods and use the "needs of the business" as a means to avoid taking responsibility for the damage they do.

The area that worries me the most, though is privatization of government functions. The weasels are rampant in the henhouse there and no one seems to mind at all.

Robert

posted March 6, 2008

I do understand the sentiment here!

But, the fact is, outsourcing is just a small part of todays global marketplace.

There are a huge number of western companies in India - selling mobile phone services(Vodafone, Virgin, Orange), financial services(JPMorgan, Fidelity), cars(Ford), day-to-day goods (Proctor and Gamble), food (Coke, Pepsi, McD, KFC) , , software and hardware(ibm, microsoft, oracle, apple) just to name a few and a number of lease agreements over natural resources like Petroleum(BP, Shell).. The list is endless .. It is very similar in other developing countries in Asia, Africa and South America as well ... If we think about it, these countries have for long been source of wealth and prosperity to the west ...

Many of the developing countries the west is outsourcing to (and market a lot of their good and services) not long back had closed economies - ie they had high export and import duties ... WTO and IMF with the backing of Western countries encouraged these countries to open their economies for world trade .. And most of them have done so - opening up huge opportunities for western companies to generate new busiess and the world became one marketplace ...

Read my second statement again.



It is a bitter pill, I know ... I have had first hand experience of this .. My Dad was a manaufacturer of a leading domestic soft drinks brand employing 1000s of people ... When Coke and Pepsi were allowed to trade in India , they crushed all local brands including ours ...


And so it has worked both ways ..

But, unfortunately we have to accept the fact and move on ...

Thought I would give the picture from the, so called "other side of the fence".

posted March 6, 2008

The short answer is, yes, they should consider the implications of off-shorting IT services on US society, but not necessarily for the reasons outlined.

The responsibilities of those positions is to ensure the viability, growth, and profitability of the company. Though off-shoring looks to be the right thing to do from a short-term perspective in that regard, it can have long-term, lasting effects.

With the amount of off-shoring, many people have either left the field, looking at leaving the field, or will never consider it. But, IT has become critical for many companies. Looking down the road, if IT has been predominantly off-shored, where are your next group of IT leaders? Without that leadership, there could be a detrimental affect on the organization's operation and profitability in the future.

This isn't to say that all off-shoring will have this negative effect, but what is the organization's long-term plans? And, looking beyond the organization, how do other company's actions in this area affect yours?

But, another thing to consider is the potential backlash against companies that have outsourced a significant number of positions if unemployment rises and the recession deepens. Companies may face a large number of customer defections to competitors.

It is not an easy challenge. Many investors are too short-sighted when looking at their portfolios, which puts pressure on the CxOs. However, at the same time, investors are pushing for bring work back, etc. But, as long as profits keep coming in, bringing jobs back takes a back seat. However, they still need to appease in some way.

Some of the ROI questions with off-shoring may be changing now, too. Given the devaluation of the dollar, offshore resources are now more expensive, relative to the dollar, which may force certain functions to come back.

posted March 6, 2008

Good question!! This is the way I look at it at a strategic level. Since I am from the P & C insurance field I would typically like to address this question with the same as an example. Typically in P & C Insurance there are 4 major buckets that influence revenues. Those are Marketing, Underwriting, Claims Processing & Rate Making. On one side if C level execs are driven towards to immediate ROI targets through reduced operating costs through Underwriting & Claims which leads to the globalization initiative. On the other hand an equilibrium could be maintained by giving equal focus on Rate making thereby creating & launching new products across different product lines and also Marketing by defining a go to market strategy. Hence the need to maintain load balance in all these 4 areas and defining respective qtr on qtr targets in each area is very critical. This will essentially lead to creating new opportunities for internal employees, in turn growing business & keeping all stakeholders satisfied. We cannot discard the industry trend and competitive edge that all organizations have to be in sync with but a wise strategy can keep all happy. Hope my response near about to answers the query!!

posted March 6, 2008

Private sector companies are profit-making entities whose sole purpose is to create wealth for their owners, the shareholders. The decisions that these companies take to increase their long-term value is the responsibility of management to carry out. Like all corporate organizations over time, different methodologies and processes for increasing efficiency and maximizing profitability are pursued. For some, "outsourcing" is this seeming route to increased efficiency and profits. Others will take a different tack and restructure themselves in ways that rely less on outsourcing and instead shed non-core businesses to focus on ever higher value-added businesses. The point being that the market will decide which companies make the right decisions and which ones do not – the verdict is still out on outsourcing as a solution to fostering efficiency, promoting customer loyalty, and building employee happiness and productivity, and ultimately profitability. But if the implication of the question is that since CxO are not taking "society" into account that outside forces be brought to bare to make them do so, that would be a big mistake. Companies are already overburdened with regulation and onerous tax rates – which perhaps is THE unwitting contributor to why companies are trying to lower costs by going offshore – so why add more? To further hasten a shift to outsourcing which may or may not be the right one with more external pressures is callous (the saying that, "the road to hell is paved with good intentions" comes to mind). If high paying jobs and a strong middle class are what we need – which I completely agree with – then we need to have a workforce that is highly educated and continually pushing the envelope in areas such as science and technology. Now THAT is the better question to ask. Let’s start by breaking the back of the monopolistic stranglehold that the teacher’s union have on in this country for primary, secondary and tertiary public education, foster school choice, bring in competition to this area, and promote the sciences and technology in ways that lead to a more competitive and educated workforce. This workforce can then enter companies, make them more efficient, create products and services that the world wants more of, and create the profits that are the lubricant of our market system.

posted March 6, 2008

CFOs and CIOs are responsible to the shareholders in public companies and the owner/investor in private companies as we are all aware. Their primary concern is to build company value and share-holder return. With that being said, I think what CFOs and CIOs fail to realize is the long-term cost of off-shoring IT services.
It has been said, hiring, training, and bringing an employee up to speed runs somewhere around 100K in the IT industry. Add to this the cost of lost Business Acumen, Process Knowledge, and Regulatory understanding (Financial, Healthcare, and other industries) that is lost when domestic employees are replaced with off-shore resources and I think we are actually costing companies more per employee than if we had retained IT services locally.
I think other hidden costs include the additional level of document detail required to ensure off-shore personnel understand exactly what the business requirements, technology limitations, and software requirements are for each project. There is also additional management oversight and supervision required for remotely managed projects, and in the case of customer service, lost credibility and customers due to communication issues with off-shore service centers.
Ultimately, in a profession moving towards Service Orientated Architectures, I would think it is more costly to off-shore IT service and development to locations that do not have a solid social, economical, regulatory, or cultural understanding of how business is conducted in the U.S.

posted March 6, 2008

Of course CEOs and CIOs should be mindful of the society they live in when they face an issue such as off-shoring IT services. That's not to say that under no circumstances should it be done. It's just to say that they should give the matter a very strong consideration, and not just look at the balance sheet, before they make a decision. This notion that CEOs and CIOs should only be accountable to their comany's shareholders is asinine. They live in a society, and thus need to be conscionable participants like everyone else.

posted March 6, 2008

I don't believe it is up to corporate executives to consider the "bigger picture" as you say.

Sending jobs off shore, regardless the industry, is not morally wrong.

What corporate executives must be concerned with is risk. Any company with a large contingent of its expertise and capital invested in any foreign country must realize this comes with an inherent risk.

The United States has no control if Pakistan and India choose to lob nuclear bombs at one another. Any company with jobs outsourced to India must have some sort of contingency plan in place should a large portion of their work force become unavailable because of this possibility.

If enough positions ship overseas, it may become a national security issue. If India provides the United States with enough worker resources, the United States may be in a situation to protect India in an attempt to protect our own economy.

With regard to jobs going overseas. We must understand it is about competition. As an IT professional, I provide a service at a cost to my employer. Should my employer decide it is more cost effective to send my work overseas, then I have failed to compete.

United States workers must look for ways to compete with the off-shore firms. The question is what service do we provide at what cost? Not until corporate management comes to realize that United States workers provide more value than off-shore workers will this trend slow or even reverse.

So the question I have to ask you. Are you competing? What value do you bring to the equation? As US IT professionals we must be prepared to compete and exploit any weakness in the process.

Cheers,
Dan

posted March 6, 2008

As both global and corporate leaders, the CxO challenge is to ensure high quality service and support, provided in the most economically beneficial manner. The question of "off-shoring" is fraught with prejudices, but here are the basic questions to ask of any offshoring discussion -

1 - Will my customer perception of my corporate brand suffer if their support calls are answered by non-native language staff. If so, are there particular accents that impact perception more than others?

2 - Am I able to limit the impact of these decisions by not locating my call centers in the most undesirable accent geographies? Can i get better perceived support while still reducing operational expenses as compared to domestic support?

3 - If I am a global corporation, what is "right" in the States, may be wrong in Europe or Asia. How do I balance localisation for consumer groups around the world to avoid impact?

4 - Can I strengthen Brand equity by answering every consumer with a native language speaker, and is that a valued differentiator that will allow me to charge more for my product or service?

5 - Can I provide an option in my IVR system that will allow a consumer to choose their localisation based on wait times? For example, "to speak with a domestic service representative, your wait time will be approximately 12 minutes. To speak with one of our global call centers with a wait time of 2 minutes, please press 1 now." Give your customers ownership of their experience.

The greater societal questions about the impact of these decisions is not less important, but perhaps less relevant. Is this even a societal concern at this time?

Start with the premise that there is a fixed percentage of US jobs that serve the call center market. By outsourcing these jobs to other parts of the world, has there been a net decline in the percentage of Americans employed by call centers? Or does the economic shift from a production economy to a service economy continue to create jobs in this sector for those that have been "lost"?

I would guess, admittedly with little research to stand upon, that the anwer is yes, the service expansion keeps a relatively static domestic call center market.

The immediate societal question shouldn't be around knowledge workers, but manufacturing and production jobs. The US needs to retain the capacity to make things, instead of just buy them.

posted March 6, 2008

What and interesting question - however, would't it be more interesting to test the successful implementation and management of an offshoring initiative. Bob, you are right, for those of us who have held directorships and senior executive positions we are hog tied - on the shareholder front, its about returning shareholder value through the stock price and its uplift. From the internal performance measurements its still about sales and revenue, project deliverables and performance. I can honestly say no one takes offshoring as a business decisions lightly and it can take years to make the leap or even make the decision. These days there is enough evidence around to suggest that for some verticals offshoring works, while in others it does not. Take the offshoring of call centres as an example - its not a highly intensive job skill in a developed market, yet it can provide returns for investment in developing countries where people can be employed, get educated and the cost to the business is significantly minimised. In these cases, however, call centers are now gaining a bad reputation because people from India are cold calling homes in America, Australia and New Zealand - and they can't even speak english - or they lie about where they are calling from or call at the wrong time (dinner time) - so for those companies who have offshored operations they are being damaged by the impact of the language barrier that has caused a perceptive nightmare. Does it cut costs though? the answer is - and should they be concious of the societal impacts? One could fairly argue that by investing in these sorts of operations in India or Malaysia or other developing countries - the global society is better off because a dollars goes a longer way in developing countries versus developed. In terms of software and software development - it is not a question of the cost - it is a question of the quality of the code development and the ownership of IP. For example, you have to be careful that you have structured IP arrangements in place with an outsourced company and you also sometimes have to have strong testing processes in place as well to ensure quality of code. Now, the cost of doing that is sometimes greater than the cost of employing the people to cut the code back home in the first place - you are simply removing a human layer and replacing it with another one. There is also another reality - skills shortages. There are very real skills shortages in nearly every developed country and it is not a case of people not entering higher education - it is a case that people are doing different things and not always the things we want them to do - which is why, as a contribution to society, some organisations have revitalised the apprentice programs and being more innovative in how cadetships and internships now operate.

At the heart of the question lies the one around year to year incremental profitability - at the end of the day for those who run a business, the fact of life is that is a business and commercial imperative. For those who work for the business - the reality is, it is income that pays the mortgage and the bills - in anyone's world, perceived or real - that is the single symbiotic relationship that cannot be broken - it is formed no matter the strategy.

posted March 6, 2008

This is like asking whether a country should open up their market to world business or they should keep it closed and try to grow home grown technologies and business and manufacturing etc instead of allowing the advanced technology companies to come in and change the situation of the society and country quicker in 2 years than what can be done in 10 years.

It is important to have a balance but a project which costs now $100 million and a year time may take $500 million and 3 years if it is assumed that it will be done in US and the benefits of the business thus society that the project being completed in a year with 1/5th cost will be missing.

So stopping out sourcing is not the issue and rather coming up with a solution for which the companies and create the same delivery mechanism and availability of number of people within the required cost structure is more important. Mind that the countries where the work is getting off-shored will also continue to refine their process and availability of the people to make it more competitive at the same time. It's the age of world society and world business today.

Nobody achieves anything by not doing something thus hurting the business and society and rather the social organisations and govt should focus on creating programs and frameworks to create a good alternative within the country much like the developing countries are trying to use more and more of their home grown technologies and resources for the growth of society.

posted March 6, 2008

The question I think not the relevant one. The relevant question is should CEO's and CIO's consider the implication of off-shoring IT services on US society more than they consider the implication of off-shorting IT services to Indian society.

It's very hard to make the case that the CEO/CIO owes a special responsibility to the United States if the CEO/CIO is not American. What should the CEO do if he happens to be Indian?

posted March 7, 2008

I have been a major critic of offshoring for IT and I've been on Lou Dobbs enough to make those views well known. Unfortunately, my reasoning on this is not. My prediction has been that offshoring is but the latest fad foisted on the industry by management consultants, "XYZ Groups" and others who have jumped on the bandwagon to profit by it. I predict in another 10 years it will have pretty much gone away.

You have hit the nail on the head here. That offshoring represents IT taking the quick fix approach rather than the types of changes you correctly mention.

It's worth remembering that the same cast of clowns who are now touting "offshore outsourcing" were doing the same for plain "outsourcing" in the previous decade. We forget that the company that was held up as the model for outsourcing was KODAK -- a company that outsourced all and now innovates nothing.

The irony here is that we companies blindly engaging in this dubious practice in spite of the obvious implications on society. For example, to my knowledge there are no objective studies (ie produced by an organization without a vested interest) whatsoever that have found a financial benefit to offshoring. That shows how right Lou Dobbs is.

Space limitations prohibit me from going into depth on why offshoring will fail over the long term.

posted March 7, 2008

If the question is whether companies have a moral duty when considering off-shoring, then the answer would be no. According to Adam Smith's Wealth of Nations, firms operate for their own self interest and this self interest benefits society. Smith notes that firms are not the only actors with self interest. He writes,

"it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest'.

As someone has already noted, employees will often move from job to job solely on the basis of promotion, more money, better benefits, or other personal motives. In other words, people act in accordance to their self-interest even though their departure negatively affects the firm (i.e turnover costs, work flow disruptions, etc). Smith notes the following,

"In explaining the 'Foundation of Property' Hutcheson says that when population was scanty, the country fertile and the climate mild, there was not much need for developing the rules of property, but as things are, 'universal industry is plainly necessary for the support of mankind' and men must be excited to labour by self-interest and family affection. If the fruits of men's labours are not secured to them, 'one has no other motive to labour than the general affection to his kind, which is commonly much weaker than the narrower affections to our friends and relations, not to mention the opposition which in this case would be given by most of the selfish ones'. Willing industry could not be secured in a communistic society."

Interestingly, we do not often consider the moral duty of people on society when they leave their jobs given their departure affects the firm and the firm has an overall positive influence on society. Furthermore, I suspect that it is only when our interests are threatened or violated that we become introspective on the overall impact to society.

The responsibility of determining the well being of society falls squarely within the government's sphere of responsibility. It (government) has the duty to defend its citizens from predatory practices and abuses against its citizens (labor laws, etc).

posted March 7, 2008

like it's been said. yes it should be the moral and social obligation of every US based company to think about this, but no it won't happen as bottom lines are kings.

the interesting thing that is happening here is that as our economy continues into a recession and the dollar keeps losing value, the off-shoring options become less and less attractive. would our economy have been in a better situation if outsourcing had been more limited. don't know. but the funny thing is that as we provide help build the economies of other countries, those same countries might one day look to outsource some of their jobs back to us. unlikely, but that would be ironic.

posted March 9, 2008

Bob,

Speaking from experience, there is no hard fast rule that off shoring "provides a quick-fix, short-term payoff" or that it does not provide long term value. The facts are that off-shoring can lower costs and accelerate business by working on a 24 hour schedule. Offshoring simply taking a business function and contracting it out. It's not that much different than calling up ADP and getting your payroll out of your hair, or calling a software developer in town to write an application for you. If the contractor is good, great. If not, it sucks to be you - which more often than not is what happens with outsource deals, period.

Why? Same reason that most software projects fail: bad planning, underfunding and bad management. No different than in house projects or stuff you contract down the street. It's why guys like you who are ScrumMasters have great value. Theoretically, a great project manager fixes the planning and bad management problem while identifying underfunding and helping fix that problem, too.

Offshoring is a byproduct of a free market and as such is not damage to a capitalistic economy: it's the natural state of things. CEOs who don't look at how to most efficiently produce are irresponsible, period because they put their company at risk of having a competitor get a huge advantage and put you out of business. The middle class is under assault from other things right now: healthcare, energy costs and access to money are all becoming issues - but offshoring will soon work in American workers favor as the value of the dollar goes down and makes the US more cost competitive. Offshoring is a symptom of the problem in the US: the cost of energy, healthcare and taxes put our nation's businesses at a competitive disadvantage against less developed nations.

posted March 9, 2008