IT outsourcing (near-shore or offshore) is now a fact of life in America (and many other developed economies like France, Germany, UK, and Japan). In the current business environment, when even one player in a specific space resorts to outsourcing, other players have to follow suit to maintain their competitiveness. And our economy has already reached that point. In fact, during a recent discussions with a group of venture capitalists, we learned that if a startup does not have a robust platform for outsourcing (or offshoring) its IT (and incresingly R&D, new product development, etc.), either these startups are not funded or the venture capitalists send them back and advise them to return with a revised plan that includes outsourcing.
Impact of IT outsourcing
The human cost of IT outsourcing comes from two areas: job losses and increased angst among the survivors. The survivors often do not trust their employer after a massive layoff and are more likely to use their remaining period at the firm to seek other opportunities.
Most employers have done a terrible job of managing this process. One of disastrous steps taken was to ask the survivors to train offshore staff and then they were either laid off or training the staff was a condition for a few months of work or severance benefits. These things do not create an environment that is conducive to building loyalty to the organization and working diligently to create shareholder value (which in our opinion should be the ultimate goal of senior management).
Apart from the direct impact on the morale of American IT professionals, there are other issues to be noted that affect the competitiveness of the United States:
Impact of IT outsourcing
The human cost of IT outsourcing comes from two areas: job losses and increased angst among the survivors. The survivors often do not trust their employer after a massive layoff and are more likely to use their remaining period at the firm to seek other opportunities.
Most employers have done a terrible job of managing this process. One of disastrous steps taken was to ask the survivors to train offshore staff and then they were either laid off or training the staff was a condition for a few months of work or severance benefits. These things do not create an environment that is conducive to building loyalty to the organization and working diligently to create shareholder value (which in our opinion should be the ultimate goal of senior management).
Apart from the direct impact on the morale of American IT professionals, there are other issues to be noted that affect the competitiveness of the United States:
- While India produces approximately 350,000 engineering graduates annually and China produces about 225,000, United States produces a paltry 60,000 and that number is not likely to rise because of the depressed job market for engineers, but we need them. This will have a serious long-term negative impact on American competitiveness as technology will continue to be be the single most important component of innovation and competition in the global economy. When we will not have enough technologists, American companies will simply establish their R&D centers overseas.
- Until now, capital was far easier to access in the US but not elsewhere. Indeed, accessing capital is still a breeze in the US (compared to many other developed countries), but it is so much easier now in China and India too. Venture capitalists now spend more time in Beijing and Bangalore than they do in Silicon Valley. These are not very encouraging indicators for American entrepreneurs.
- Several surveys of employees indicate lower morale, worries about job loss, lack of trust in the employer, and when combined with the overall depressed consumer sentiment data, one sees a nation that is not very optimistic about its future. And we all know what happens when we are less optimistic.
What can be done to lower the human cost of IT outsourcing?
- It seems that companies do care about the impact on their employees and have offered solutions, but have not done a great job of implementing them. Horror stories of mistreatment of laid-off IT workers abound. Companies need to plan better and may need to bring in outside help if their HR department is incapable of dealing effectively with this type of situation.
- The solutions and packages provided by employers have not met employee expectations. In the current environment in which laid off IT employees have literally no hope of securing employment in their area of IT expertise, companies need to show more generosity.
- Stop being mean. A business has every right to reduce its workforce and move anywhere it wishes, and we support it as a pure business decision, but mistreatment of employees (e.g. security staff escorting employees out the door within minutes of being given a pink slip or being asked to train your own replacement are dehumanizing experiences) not only creates a bad image of your company but also negatively impacts the morale of the survivors. If you don't know how to do it right, there are excellent providers of outplacement services that should be able to help you.