Future of Outsourcing Information Technology

Future of Outsourcing Information Technology From the United States

Information technology jobs are amongst those most frequently being outsourced to other countries, especially to third world nations. There is a complex set of reasons behind the outsourcing of these jobs that cannot easily be dissected. This brief study attempts to simplify the overall picture of it outsourcing, and to project the future of outsourcing of it jobs in America.

One of the most hotly debated topics in conversations between Americans today is the outsourcing American information technology jobs to foreign countries. In 2005, journalist John Zaracostas, reporting from Geneva for the Washington Times, advised readers that nearly 250,000 jobs for which Americans had graduated expensive undergraduate education and post graduate educations, expensive investments in the American job markets and careers, would move offshore between 2005 and 2015, according to the Organization for Economic Cooperation and Development (p. C10). Zaracostas reported, too, that the outsourcing of these highly skilled white collar jobs would likely "fan political sensitivities (p. C10)," meaning that the response of Americans to outsourcing should be a central focus in the campaign for the 2008 Presidential election, and every House of Representatives and Senate seat that comes up for election and re-election. However, as the 2008 presidential election campaigns are drawing to a close, there has really been little discussion as to how any of the candidates would help Americans gain a comfort level that the information technology jobs they trained for, educated themselves for, and have the student loans to show it, will be available to them in the way that these job opportunities and incomes would be save for the fact that the jobs are being outsourced to other countries, especially developing countries. The fact is that skilled American jobs in information technology are being outsourced by private business, states, and the Federal Government as a way to increase corporate bottom lines, to garner favors with foreign governments, self-interest, and in the move towards creating a global economy, which requires bringing developing nations into the competitive and economic folds of that process.

This study attempts to examine outsourcing of it jobs in a way to better understand the impact of that process on Americans; graduates who have invested large sums of money in acquiring and maintaining the technological expertise and information to enter the it market, stay abreast of new technological developments, and to establish careers in their fields of study. In this study, the question that I will attempt to answer is: What is the future of outsourcing it jobs in America mean to Americans?

Literature Review

Ten books and journals have carefully been selected on the basis of their contribution to forming as complete a picture of the future of it outsourcing as possible. Outsourcing is a sensitive subject, politically, economically, and individually for the many people whose lives have been affected by the outsourcing of it jobs. However, outsourcing is also about building a global pathway to economic trade and moving third world nations into the economic zone towards sustained economic independence. Today, the United States contributes billions of dollars in foreign aid to impoverished nations. Any step away from that source of income as a recurring source of income serves the American taxpayers well.

The books and journals selected for support of the ideas in this paper are used to build here the incremental future of it outsourcing, including that part of the picture that demonstrates how outsourcing has improved the economic conditions of the countries where the work is being outsourced to. The individual works have been selected to include those negative aspects of outsourcing, to demonstrate that where there is a manipulation by governments and business as co-partners in directing the building of a nation's economy, there is often times abuse of power and corruption for personal gain.

The set up in the introduction was well served with the Washington Times article by John Zarocostas, taking figures from a reliable source, the Organization for Economic Cooperation and Development, to forecast the number of it jobs that would be moving offshore over the next ten-year period. It is relevant to this paper on the future of it outsourcing in America, because it is consistent with American leaders' move towards globalization. Globalization is something about which the American people have heard very little on from our elected officials, yet something which our elected officials and American businesses and corporations are very much a part of.

So as we look to understand outsourcing, we immediately see that it is tangential to the plan for global economics and balancing the economies of the world in a way that moves impoverished nations out of dependence on U.S. contributions to improve those impoverished conditions. All the while, however, the American taxpayers are going into debt with loans and grants to help third world nations deal with those conditions of hunger, shelter and health care as American jobs are being outsourced to those very countries.

Journalist Brian Farmer, writing for the New American, compliments Zarocostas' lead in, proving a perspective from historical industry trends in business moving offshore since the early 1970s. Farmer works the issue of globalization into the formula of his discussion, which is supportive of the research in this study.

The newspaper and magazines selected for reference in this study are important because they bring to the study the most up-to-date information and public reactions to outsourcing. The newspaper articles are investigative journalism, which means that the journalist has to research and uncover the story that is not otherwise forthcoming, or is perhaps vague. While the journal articles and books are peer reviewed, works written in the last decade just cannot reflect the changes in laws and pending bills introduced into the American Congress. For this reason, in this research study, it is useful to read the newspaper articles for the value of fact that they contribute to the immediate moment as concerns outsourcing.

Thomas J. Allen and Michael C. Scott Morton's (1994) book, Information Technology and the Corporation of the 1990s: Research Studies, allows for the exploration of the it boom of the 1990s, its relevance to business and corporation, and its meaning as a viable source of economic sustainability.

Other works selected to contribute to the points of the study will be introduced as they come up. These works do not provide the bulk of the study here, but are peripheral in nature that they support my conclusions and suppositions based on my ideas informed by the more prominently cited works.

Information Technology

Understanding what information technology is will serve to inform the reader with information needed to decide whether or not the outsourcing of it jobs from the United States to other countries is reason to be concerned. It will also help to create a picture of how this technology will evolve, and what that evolution in technology means to the United States and the countries targeted for outsourcing. Thomas J. Allen and Michael C. Scott Morton (1994) discuss the information technology revolution of the 1990s in their book, Information Technology and the Corporation of the 1990s.

Information technology has revolutionized business and corporations because it is not an adjunct of doing business or of the individuals conducting business. "No longer will information technology be simply overlaid onto existing business; it will now be used to restructure the enterprise (Allen and Morton, 1994, p. 3)." In other words, now business emanates from within the information technology, outward, reacting to the information through the technology. Allen and Scott cite Charles Jonscher, Chief Executive of the European Trust Company, who contends that the restructuring is occurring between, as well as within corporations (p. 3). Information technology has blurred the lines between the entities and, equally important, customers say Allen and Morton, agreeing with Jonscher (p. 3).

The boundary between customer and supplier is becoming difficult to define as electronic integration blurs the distinction. Within organizations, distinctions between information technology and production technology and between information workers and production workers are becoming increasingly difficult to maintain (p. 3)."

At these levels of corporate functioning, we now understand how information technology revolutionized and transformed the look of corporations and even government, because these same changes took place in government, and, reversely, between consumers and businesses. Jonscher says that electronic communication is the critical path, the life-line of the corporation, and that expansion and growth of business will be at the rate of the ability to communicate information; which we see by technology today, is with lighting speed.

Allen and Morton say, too, that the organization has, and will continue, to restructure itself around the effective use of it (p. 3). Allen and Morton cite Michael J. Piore, saying that:

revolution is taking place in both American managerial practice and technology. Basic structures are changing with the introduction of multiple lines of reporting, team management, parallel decision making, the integration of suppliers and vendors, and attempts to reduce in-process inventory and to introduce new forms of industrial relations (p. 3)."

Corporate Reform

Understandably, information technology caused experts to rethink successful business models. The 1990s represent a nearly clean slate in the remodeling of business because of information technology. Scott and Morton have identified five markers that serve analysts and experts in creating the business model which now emanate from information technology outward, and links other entities and customers in a seamless way.

The markers of the revolution in corporate structure and managerial practice are multifold, but the essence of the changes can be captured by five items:

First, in terms of the classic corporate structure, the most startling of these reforms is the shift to matrix management. The traditional corporation was organized by business and/or function, with clear lines of authority and a strict division of labor. But in the new structures, there are overlapping responsibilities, and managers report simultaneously to several superiors. This organizational form was not completely unknown in the past, but previously it was largely used to compromise the choice between a function and a business structure, and the matrices were essentially composed for these two types of units.

A second reform is the increased use of managerial teams and of parallel, as opposed to sequential or iterative, decision-making processes. This is most apparent in engineering, in which the usual procedure is to pass a decision down an engineering hierarchy, starting with product engineering, then to process engineering where the equipment is designed, and finally to the industrial engineers who design the plant layout and the initial manning tables. In principle, the design can be passed back from the latter stages, but in practice, designs at one stage tend to be frozen before they move forward and are revised only when truly insurmountable obstacles arise further on....A third set of changes are the relationship between the corporation and the outside organizations with which it does business. These include both vendors and subcontractors from which the company traditionally purchases inputs into the production process, and other businesses that the company purchases in an effort to expand its product line an/or to diversify....Fourth, still another series of organizational reforms are associated with the movement to reduce, and ultimately eliminate, in-process inventory in manufacturing. This began as an effort to imitate the Japanese Kamban system in which automobile subcontractors deliver parts just in time to go into production, thereby dispensing with the warehousing that used to be required at the assembly site....Fifth and finally, these changes in corporate structure and managerial practice have been accompanied by significant changes in industrial relations. These include a decentralization of collective bargaining to the plant level; a shift in the focus of collective bargaining from the negotiation and applications of rules and procedures to the negotiation of substantive outcomes; a broadening of job classifications and permissible work assignments; a movement away from layoff and recall based on seniority toward continuous employment; the introduction of quality circles and similar forms of worker participation in production planning and shop management; a movement in compensation from rates based on job assignment to personal rates based on skill level and "knowledge"; profit sharing; and worker representation on corporate boards of directors. None of these changes should be too surprising in light of the changes in work organizations associated with the elimination of in-plant inventories, although they are an independent phenomenon not in any sense confined to those operations in which inventory policies have been changed. But like that reform and the changes affecting managerial organization and structure, they have the effect of enhancing workers' independence while at the same time reducing hierarchy and increasing the capacity and the incentive to communicate laterally across work divisions (p. 44-47)."

These five elements are the elements by which experts and analysts of the 1990s began remodeling the business models around. To accomplish outsourcing, it becomes apparent why governments and businesses have selected it outsourcing to accomplish globalization:

Its seamless binding can be done from an off-site, off-shore location without impacting the way in which the new business model emanates from the information technology.

The outsourcing does not impede the continuation of improved information technology, and, therefore, does not impede the company growth.

Outsourcing it will not prevent growth in the it industry, which will continue to expand, improve, and affect businesses from that expansion and improvement.

From this perspective, we see that outsourcing of it cannot impact businesses or consumers. It does, however, impact individual jobs and incomes projected by higher learning institutions who promoted those career paths for young American college and university students.

Globalization and Outsourcing

Globalization is an important element in the outsourcing picture. It is what drives the political and the corporate engines in the effort to outsource it jobs. Writing for Communications Review, Jeffrey M. Kaplan (2003), describes outsourcing as a "sector" of it and networking (p. 36). This description emphasizes how synonymous outsourcing has now become with the concept of it. In 2003, Kaplan cited the Yankee Group analysts, projecting:

Yankee Group predicts worldwide it outsourcing (including all kinds of network and computing functions) will grow 10-12% annually to reach $273.9 billion by 2006, and business process outsourcing to grow 12-20% annually to $500 billion. As for the new utility computing services, Gartner estimates 15% of North American enterprises will adopt them in 2003, and the market will grow from $8.6 billion in 2003 to more than $25 billion in 2006, when 30% of North American enterprises will have utility computing arrangements (p. 36)."

Kaplan brings up the very corporate argument that outsourcing saves money (p. 36); this is not debatable, because the cost of employing individuals in third world countries to do the necessary it work is inarguably significant vs. The cost of those services in the United States. Kaplan, however, provides these points that bind the savings and the pragmatic sides of outsourcing:

1. New technologies let service providers package value-added functions with managed services. Frame relay sales have clearly benefited from the addition of performance monitoring and management tools from vendors like Visual Networks and Concord Communications. Service providers are hoping that new customer premises equipment will also help get VPN, IP-Centrex, integrated messaging and other network-enabled application services off the ground.

2. Competitive pressures are forcing service providers to repackage and price their offerings to make them more attractive to customers. For instance, 67% of the BCR/THlNK strategies survey respondents who are currently using managed services, are getting them from IXCs and specialized managed service providers. In contrast, of the survey respondents who expect to consider managed services in the next twelve months, 82% will look at the services offered by ILECs, systems vendors and it service companies.

3. Buyers have become more experienced and are better able to evaluate their outsourcing alternatives. As an indication of this trend, Gartner predicts that 50% of outsourcing deals in 2003 will be considered successful by senior executives because they deliver their anticipated value, compared with only a 20% success rate in the 1990s (p. 36)."

As prevalent as business outsourcing has become, not all businesses find the advantages of outsourcing, especially small businesses which would not realize any significant bottom line advantage to outsourcing. However, and surprisingly, Kaplan found that some much larger corporations are rethinking outsourcing. Kaplan found:

AT&T has pulled back significantly from its aggressive efforts to provide comprehensive end-to-end network outsourcing services -- it no longer assumes ownership of customers' networking assets and personnel. It is now emphasizing core transport and hosting services, while partnering with Siebel Systems and other application software vendors.

MCI recently unveiled plans to emerge from bankruptcy in late 2003 with a renewed emphasis on what it calls "convergence networking." The company's MCI Advantage services include both managed services and full network outsourcing capabilities aimed at taking over a customer's entire network operation. It is also leveraging its Digex subsidiary for hosting services.

Sprint is pursuing the most ambitious network outsourcing strategy by positioning itself as the aggregator of "best-of-breed" technologies and applications. It serves as the primary sales channel and service delivery provider for its managed network and application services, while relying on software partners behind the scenes. Sprint reports that it has doubled the number of customers under management, and that its overall service revenue grew more than 20% in 2002. (the other carriers refused to report their managed service revenues for this article.) (p. 36)."

What we find are not companies opposed to outsourcing, but companies whose outsourcing alternatives are better served by not off-shoring their business. It does not change the business model that demonstrates it as the central force of the business as identified by Allen and Morton.

Government Outsourcing

If you think of the Untied States and individual state governments in terms of a business, then it is more easily understood why these governments would turn to outsourcing; to save money. The public's response to government outsourcing at the state and federal levels is strongly against outsourcing (O'Meara, 2003, p. 32). The concern of people is that the state and federal governments are outsourcing jobs that belong to Americans, and this sense of possession is greater than that regarding corporations. O'Meara quotes New Jersey State Senator Shirley Turner as saying this about outsourcing of state work:

Hey, it's good work if you can get it," says New Jersey State Sen. Shirley Turner about the outsourcing of the Garden State's welfare-processing contract. But neither New Jerseyans nor any other Americans are getting the work, so she has introduced legislation that she believes will keep those jobs at home (p. 32)."

This is exactly what most Americans want, to keep the it jobs, and other jobs currently being outsourced to other countries, at home. But outsourcing is being used not just as a tool for the state and federal governments to save money; it has become a political manipulator in the world politics arena. Dr. Alon Peled, of the Hebrew University of Jerusalem (2001), writing for Public Personnel Management, asked this question (and others): "Which actors gain or lose political clout when the government begins to aggressively outsource its it operations (p. 495)?" It consultants (to whom work is outsourced) become powerful political players by virtue of their role in producing and maintaining public information technology (p. 495).

On the subject of government manipulation of it outsourcing, Stephen D. Tansey (2002) writes:

Government interventions that affect the information technology industry are only a special case of a whole host of interventions by governments in economic matters. The economic policies and attitudes of governments affect the economy as a whole, which in turn constitutes the environment for the it industry. We begin, therefore, with a general discussion of the role of governments in influencing the economy by way of background to a much more detailed discussion of their impact on it (p. 78)."

Economically, when the state and federal governments are outsourcing it jobs to India, and other third world nations, the predicted result is that those nations will see an increase in education and training for it and it related jobs. That the outsourced jobs will serve to jumpstart industries, employment and growth in a third world country. That this growth, especially in a field that will continue to experience growth such information technology, will serve as an economic stabilizer for the country where those jobs are outsourced to. That this economic stabilizer will serve America well in economically linking that nation to America, creating a political cohesion that will replace economically what has long been established militarily as an ally between nations. This will bring the third world nation into the work market and global community with strong ties to the United States, and it would, from a political perspective, follow that those nations would be supportive of U.S. initiatives on the world front in matters of economic and strategic importance to the United States. Certainly that raises the question of whether the trading of American jobs for that economic and strategic alliance is worth the trade; and the answer to that is difficult to ascertain this early in the outsourcing picture.