Is I.T.Offshore Outsourcing Really Cheaper?

Recently, it seems there have been an abundance of articles about how I.T. offshore vendors will be receiving more business because of the perceived cost benefit of hiring overseas labor. The underlying conventional wisdom in these articles assumes that offshore outsourcing is always cheaper then U.S. based knowledge workers.

The time has now come to challenge conventional wisdom.

While rates overseas have been rising, U.S. rates have been falling. In addition, more and more I.T. executives are talking about productivity issues (in addition to other hidden costs) when they go overseas. For example, if they cut a U.S. based Java developer, they may have to hire 2 to 3 overseas to get the same output. Combine that with overseas rates ranging from $24/hr to $29/hr, and the labor arbitrage is not nearly as attractive as it once was. And if we’re not saving money, then what’s the point?

As the article “The Battle For U.S. Tech Jobs” illustrates so well, the U.S. based I.T worker is finding ways to compete. Synergroup Systems is proud to have lead the way, providing a cost competitive offshore outsourcing alternative for over 6 years.  If you’d like to know more about our “Homeland Onshore Model” please email us at  inquiry@itonshore.com, or visit our site at:   www.ITOnshore.com.

Are There Domestic Employment Alternatives To Offshore Outsourcing?

Nothing travels faster than light, with the possible exception of bad news, which follows its own rules. ~Douglas Adams …

I must admit, it’s been hard to pick up read the business section the last few weeks.  Day after day, we’re being barraged with news about lay-offs, poor earnings, and irresponsible (or just plain stupid) executive behavior.

Today I came across an article that really helped to me to crystallize my thoughts about how we can keep jobs here without becoming protectionist.  According to an article in InformationWeek  dated February 2, (IBM Offers To Move Laid Off Workers To India) IBM has implemented something called “Program Match”.  Basically it’s a program whereby laid off  U.S. IBM workers can apply for offshore jobs in countries like India, China and Brazil.  Relocation assistance would be provided.  The article goes on to state that if selected, the employees  “will be paid according to prevailing norms in the countries to which they relocate.”  

The story got me to wondering:  Do U.S. corporations have any responsibility to mitigate the work they send overseas, assuming that U.S. workers are willing to be competitive or flexible?  Given the millions of lay-offs now taking place in this country, isn’t it possible that U.S. workers would be willing to accept less, rather than losing their jobs entirely?

Put another way, Is there a domestic employment alternative to offshore outsourcing? 

When the total cost of ownership for overseas labor is taken into account (Blended rates, travel time, turnover, dollar devaluation, rework additional management oversight etc.) one might be surprised to find out that the U.S. Knowledge worker might be within striking distance of being very competitive.  With that in mind, here are some concepts worth considering before you decide to go overseas:

1. With 10% plus unemployment expected by the end of 2009, extremely motivated, reasonably priced domestic IT  talent is close by and ready to listen.  Many IT professionals are very flexible and in some cases, open to a virtual office employment at reduced compensation levels.
2. Due to the strained economic climate, there may be  numerous dislocations of experienced and talented knowledge workers within the U.S.  Prime examples are the auto industry migration to the South and the financial industry in the Northeast.  What about the collapse of retail over the past year?  Vast layoffs in the retail sector have created pockets of available talent in many areas of the country. These are resource opportunities that can result in large cost savings within a corporate budget.
3. Depending on size and scope of the resource requirement, regional cost effective solutions may only be a virtual office away.   Imagine experienced and talented reduced rate resources that can be occasionally available on-site, while most production is completed on a remote basis.

So rather than displacing, laying off  and under utilizing our nation’s intellectual capital, maybe what we should be doing is asking whether they would be willing to make a few adjustments.  For example, if a company is willing to relocate some one to India, why not relocate them to a lower cost of living area right here in the U.S., and adjust their pay accordingly? Such actions may offer one solution to the accerating unemployment gripping this country while at the same time support potential growth areas in the U.S.  

There is no doubt that these are tough times, and lay-offs and terminations are as unfortunate as they are necessary for a companies survival.  However, there are domestic alternatives to offshore outsourcing.  With a little creativity, we can impact our growing unemployment issue.  Before  making an unconscious leap into the “swirling offshore waters”, consider how a homeshoring alternative such as the “Homeland Onshore Model”  might work for your organization.  You  may be pleasantly surprised at the comparative risk-reward ratio.  

If you have any thoughts on onshore vs. off shore, we’d love to hear your comments. 

The Satyam Scandal: The Catalyst For Offshore Jobs Returning?

Trust only movement.  Life happens at the level of events, not of words.  Trust movement.  ~Alfred Adler

The bombshell dropped by Satyam chairman Ramalinga Raju is undoubtedly sending another shock wave across the Pacific and directly into U.S. boardrooms (Click Here For Article).  For the second time in less than two months, a major event that has implications for the offshore outsourcing industry has made international headlines.

While no one can exactly predict what affect this will have on the Indian offshore industry, one can probably surmise with some certainty that U.S. executives will begin to take a hard look at their own offshore vendors and strategy.  Just three months ago, Satyam received the Golden Peacock award, given for excellence in corporate governance.  Makes you wonder what changed so dramatically in such a short period of time.

There’s little doubt that this will shine a bright light on other major offshore vendors regardless of the country of origin, and given the rising unemployment in the United States, the timing couldn’t be worse for these companies.  

That being said, the U.S. worker may have just caught a huge break.

What We See In Our Crystal Ball 

As unemployment rises, offshore outsourcing will draw the ire of many in the U.S.  Should the deflationary trend continue for the foreseeable future, many skilled but unemployed workers will be willing to work for considerable less then what they previously earning.  Furthermore, companies located in expensive metropolitan areas will consider utilizing remote workers to fill many of their previously outsourced positions.  This will allow firms to enjoy the benefits of lower cost jurisdictions across the U.S. at prices competitive to what they used to pay offshore vendors.  The employment costs will be offset even more by the tax credits the hiring firm will enjoy (for hiring U.S. workers) courtesy of the Obama administration.  The early adapters of this strategy will have the added advantage of a major PR coup.  Soon, it may seem like a contest to see who can bring the most jobs back home. 

The Homeland Onshore Model Has Already Proven The Point

Our “Homeland Onshore Model” has demonstrated that domestic remote sourcing can work, saving our customers up to 60% over fully burdened FTE costs. The remote model has the extra advantage of being very “Green”, and will do wonders for the life/work balance.

Do You Have A Contingency Plan?

The Homeland Onshore Model is an excellent alternative to Offshore Outsourcing.  In addition, it can be strong part of any contingency plan that calls for repatriating jobs in a hurry.

For more information on the “Homeland Onshore Model” and how it can work for you, please visit www.ITOnshore.com.

Offshore Outsourcing Risk: What’s Your Contingency Plan?

“There’s no place like home”   – Dorothy, The Wizard of Oz

The tragic events that occurred in Mumbia last week have rekindled an issue that seemed to have been set aside since the acceleration of offshoring began earlier this decade.  Simply put, that issue is risk.

Articles like this one from Workforce Management:  “Attacks in Mumbai Could Force Execs in U.S. to Rethink Outsourcing Plans”, make the point that the risks associated with moving jobs offshore are real and growing more complex than could have been anticipated years ago.

A recent report by the TowerGroup suggests that companies may now be taking political risk into consideration as part of their offshore decision making process. (MarketWatch December 3, 2008).

Political and financial instability created issues that probably were not factored in when the original decision to move jobs overseas was made (probably by different executive teams) earlier in the decade.  And while experts seem to agree that the Mumbia terrorist attacks probably won’t result and any loss of outsourcing business, it may serve as a wake up call in many board rooms across America.  One way this may manifest itself is in the area of contingency planning.  Contingency planning (in the event the jobs had to be brought back quickly)  may have been set aside in the past because the perceived risk at the time was low.

U.S. Workers Should Be Considered as Part Of Any Contingency Plan

While other offshoring venues around the world will certainly be taken into account, we’d like to suggest that companies should also consider the possibility of bringing at least some of those jobs back to the U.S. as part of any contingency plan. Given the rising unemployment in this country, and the large cost of living discrepancies that exist between cities and outlying areas, companies could hire U.S. workers, let them work remote and still show a significant savings over original costs.  In fact, when all the cost of offshoring are taken into account, companies may find that this approach may actually be preferable to their current offshore operations that require interaction from U.S. business units.

Utilizing our Homeland Onshore Model (HOM), we have been able to successfully demonstrate just how effective this approach can be (Savings up to 50%).  Given the growing issues here at home, we believe the timing is good for U.S. based firms to look within our own borders for creative cost saving answers.  Right now, our country needs to keep people working and stop the cycle of  demand destruction that goes with rising unemployment.

Who knows, the jobs they save just might be their own.

For more information on the “Homeland Onshore Model” Please visit www.ITONshore.com.

Homeshoring: An Alternative Solution To Domestic Unemployment

“When the music changes, so does the dance” – African Proverb

We introduced the Homeland Onshore Model five years ago. At that time, the economy was in recovery mode and unemployment really wasn’t an issue.  Those who wanted work could get a job.  The market for I.T. outsourcing was really taking off, but no one really seemed to care too much.  After all, companies were anticipating great savings, and those who were impacted here either found other work or got out of the business altogether.  Most of the I.T. managers we spoke with at the time really liked the HOM concept, but were still being mandated to go offshore.

Five years of actual execution and hindsight have provided some much needed clarity.  Many companies have learned that offshore outsourcing isn’t the silver bullet it they were hoping it would be. Hidden costs, (ex. rework, high transition expenses, travel, turnover, dollar devaluation, expensive on-site/off-site ratios, additional management) risks, and other issues have many firms questioning their offshore strategy.

Lately, I have been spending a lot of time speaking with very qualified people who are currently looking for work.  They are not just I.T. people.  Many come from finance, accounting, human resources, marketing and legal backgrounds.  Budgets being what they are, I fear that the ranks of the unemployed may grow larger in 2009.

I sincerely hope I’m wrong.

And yet, even with unemployment growing in this country, we still see stories about companies looking to save money by shipping jobs overseas. (Computerworld November 10, 2008).

It appears as if a company’s first reaction to saving money is to look some where else.  I can understand that because that has been the accepted solution for the last 8 years.  However, the economic landscape is rapidly changing in this country, and huge opportunities exist for firms that are open to looking at fresh and innovative ideas.

The solution to our spiraling unemployment is not to move jobs overseas, but to take advantage of lower cost areas that exist throughout the U.S. by allowing workers to work remotely.  People outside the big cities cost less because the cost of living is usually much less in outlining areas (Basically the same thinking behind offshoring). The remote worker wins because they no longer have the commuting costs, and gains between one to two hours a day of additional family time.  The cost of living differences combined with higher unemployment may mean even further cost savings for the employer, a trade off many workers may be willing to make for a better quality of life and lower gas bills.  Albeit on a small scale, we have found this model works extremely well and has allowed us to directly compete with offshore resources when all the costs were added up.

Need proof? Check out this article from Networkworld in 2005.  It outlines how companies like Office Depot and Jet Blue are utilizing U.S. based call center agents that work from home (Homeshoring) instead of overseas agents. Apparently, it’s working very well.

How many jobs can be created by taking the Homeshoring approach?  How many jobs can we save by taking a different path to cost reduction?  Maybe it’s time for companies to think outside the box by looking within.  When we implemented the Homeland Onshore Model, we proved that domestic workers could compete directly with offshore resources.  Notice I’m not advocating protectionist policies;  I am saying we can compete. This is America, and we always find a way to solve even our most dire problems.  After all, we are amazing innovators.  America is home to world’s most productive workforce.  It’s time to take a new look on how we can deploy them to everyone’s benefit.  We have the technology (high speed internet) to solve our unemployment challenge, let’s use it.

If you’d like more information about how the Homeland Onshore Model can benefit your organization, please contact us at: Info@ITOnshore.com.

If you’re a candidate and would like to work from home, please send your resume to: resumes@ITOnshore.com

Is There An I.T. Labor Shortage?

“There are things known and there are things unknown, and in between are the doors of perception” –  Aldous Huxley

Jason Hiner, Editor in Chief of the TechRepublic stirred up a hornets nest in his latest article entitled “Sanity Check:The IT Labor Shortage is Real and Offshoring is Overblown“.   If you haven’t seen the article, I strong suggest you click on the link and read it. His article focuses on two major premises:

1. The I.T. Offshore Trend has been Overblown in the Media

2. The I.T. Labor Shortage is Real

We’ll address the first point in a later post.  However, point number two is worth examining.  Mr. Hiner gave a lot of facts and figures to back up his points.  But a quick gander at the comments and you’d think he was personally attacking every I.T. worker in America.  I mean the responses were abundant, visceral and angry.

The article states that: “CIOs say they are still having trouble finding enough domestic IT workers with the right mix of skills to fill the open positions that they are keeping at home”.  The key part of that quote is the “right mix of skills”.  In other words, we have openings, but we really want a combination of skills that’s going to be difficult if not impossible to find (because we know these combinations don’t exist overseas) because we’re trying to combine two to three jobs into one.

If you check out some of the comments (and there are lots of them), you’ll read a lot of stories about people who were turned down not because they didn’t have the core skills, but because they didn’t posses all the secondary specific skill sets that the employer would like to have.  Then there were the stories of people that had the correct combination of skills, but didn’t take the job because of a low ball offer.

So, isn’t the real question: Is there an I.T. Labor Shortage, or is it just the perception of an I.T. labor shortage?

Apparently IT enrollment has trended down because of the dot-com bust and the fact that many students didn’t want to invest time and money to learn a career that was being outsourced overseas at a torrid pace.  Secondly, we all know people who got out of I.T. during the last recession and jumped into other careers. And Finally, how many times have we been told that the baby boomers will blow a huge whole in the labor market once they start to retire?

Now consider this headline from a November 12 2008 article from MarketWatch: “Despite Slight Dip in October, IT Employment Continues to Outperform General Employment Market“.  Basically the article states that I.T. employment has so far held up well during the current economic downturn.

So is there an I.T. labor shortage or not?

I believe the answer is no, there is no shortage, but there is the challenge of geography which can be overcome.

Everyday I try to fill jobs looking for very specific skill combinations.  While these difficult combinations do exist, they may not exist in a commutable distance from the firm that needs them. For example, a financial firm in San Diego California may need a Charles River DBA and may not be able to find one because they just don’t exist in San Diego. However, there be an abundance of Charles River DBA’s in Omaha because that’s where most of the Charles River activity is located. However, few if any of the Charles River DBA’s in Omaha would even think about moving to an expensive area like San Diego. Therefore, even though there may be enough (or even unemployed) Charles River DBA’s in Omaha, there is an extreme shortage in San Diego.

So what would be the best way to get the candidates and companies who need them together in a much more productive and efficient manner?  The answer is the “Homeland Onshore Model” or Homeshoring.

Simply put, let the DBA in Omaha work remotely into the San Diego office. Because the Omaha DBA is working home, they will probably be happy to work for something less than what they made commuting  everyday.

By opening it’s door to remote workers, the San Diego company is greatly expanding it’s recruiting base and taking advantage of a great cost savings, given the cost of living difference between San Diego and Omaha.  In addition, the San Diego firm is able to save money on real estate and other overhead costs. The Market comes together, and everybody wins.

Whether we’re talking about IT, Finance, Marketing or other Knowledge based positions, I  believe that the Homeland Onshore Model (Homeshoring) may go a long way to help mitigate future unemployment, while allowing U.S. based workers to be competitive with offshore resources.

What do you think?

http://www.ITOnshore.com

Moving To Montana (The Rise of Rural America)

It is not necessary to change.  Survival is not mandatory. ~W. Edwards Deming

On Friday I was in the front lobby of a large corporation waiting for a friend.  Sitting across from me was a very nice woman, with whom I struck up a conversation about the hot weather we’re currently experiencing in California.  Through the conversation, she happened to mention that she and her family were moving to Montana.  I asked her if she or her husband were from Montana.  Much to my surprise, she explained that both she and her husband  were native Californians.  Being a California native myself, I found this very interesting and borderline surprising.  Of course, I needed to know why two natives wanted to leave.  She explained that she had just been laid off,  and her husband was leaving his small business wanted to be a rancher.  In addition, they thought that Montana would be a better place to raise their Eleven year old daughter.  To sum up, they wanted a simpler lifestyle, dictated by values not cash flow.

And then, as if on que, I read an article by Steve Lambert in the Inland Valley Daily Bulletin (Changes Bring Challenges, But the Sky’s the Limit for Americans).  In the article, Mr. Lambert discusses the social changes he believes will occur, bringing revitalization to small towns as people leave the big cities searching for a better quality of life. In that same article, he also talks about   “a spirit of patriotic capitalism that puts a priority on buying locally and buying American”.

As I read his words and thought about the “Montana Woman”, I realized that a trend may already be occurring, we just don’t realize it yet.  It leaves me with little doubt that corporate America will also see this trend before it turns into a tsunami, and implement remote work policies that will allow these amazing knowledge workers to work from home, supporting the lifestyle of their choosing, while creating incredible value for the firm that utilizes their skills.

And that is what the “Homeland Onshore Model” is all about.

www.ITOnshore.com

Homeland Onshore Model Video

Domestic Alternative To Offshore Outsourcing

Attention Protigal Jobs…It’s Time To Come Home

Everyday we get hit with business news that just seems to go from bad to worse.  No doubt, the wall street crisis has manifested into a main street blood bath. For the moment, the economy seems to be hemorrhaging thousands of jobs, and it may get worse before it gets better.  However, as bad as it all seems, I believe there may be some mitigating factors that just might help stem the losses and provide hope to a beaten down economy.

First, it’s hard for me to imagine that companies will continue to put jobs offshore when this country is being hammered with unemployment that could reach 10% sometime next year.  On the other hand, it very easy for me to see Congress making it a condition of any company receiving government assistance that they will bring jobs back stop sending any jobs across any ocean. This will stop any possibility of a company taking your tax dollars and then moving your job overseas. That would just be rude.  The November 10 article, Outsourcing crisis in the Economic Times beautifully illustrates the point.

Secondly, the inevitable regulations that will thrust upon corporate America, especially in the financial sector, will make SOX or Patriot Act look like the forward in “War and Peace”.  The I.T. effort alone will create 1000’s of jobs and lots of headaches for executives. The November 12 article in InfoWorld, New Regulations Will Soon Swell IT Workloads really explains the situation well. 

Third, overseas jobs will come back because of economics, not government mandates (well maybe a couple). To the extent that companies receive tax breaks to set up overseas, well, they can kiss those goodbye.  In addition, I’d be very surprised if tax breaks weren’t created for companies that hire domestically.  However, these jobs will come back predominately because companies aren’t saving that much overall, coupled with the fact that the domestic workers will find a way to work for less, and become much more competitive.  How will they be able to work for less?  They’ll move to lower cost areas and work from home.

Working from home and the lifestyle improvement that provides will be the trade off workers will make for the reduction in income they will have to endure.  However, people moving from high cost areas like San Francisco or New York into lower cost jurisdictions may find that their income in real dollars may not decrease that much (if at all), and their quality of life may vastly improve.  From the corporate perspective, the shifting of overhead costs like real estate, electricity and even furniture to the employee or contractor will be an unanticipated boon to their cost structures.

I’m not just making this stuff up. We’ve actually implemented the model (we call it the “Homeland Onshore Model” or HOM) using mainframe resources and it works very well.  In fact, we’ve saved our clients between 40% and 50% using the model.  We don’t see any reason why it couldn’t work for any Knowledge discipline, such as finance, accounting or marketing.

As a friend pointed out to me today, America shines it brightest when are backs against the wall. Creativity in troubled times as always been our strength, and it will be no different this time around.

The solutions are out there, and the jobs aren’t far behind.

If you’d like to know more about HOM, or if you’d like to be considered for job that utilizes the HOM, please visit our website at:  www.ITOnshore.com, or send your resume to:  resumes@ITOnshore.com

Higher America

“You can always count on Americans to do the right thing – after they’ve tried everything else.” – Winston Churchill.

It’s now October and things have changed quickly and dramatically since my last post in May. The time has finally come, the tide is slowly turning back.  The days of moving high level jobs overseas for the sake of moving them is officially coming to an end.  I’m not saying this to be protectionist, as I’m not a believer in protectionist policies.  They never work.  I do believe in the market, and that markets can and will adjust accordingly.  I also believe that American business is waking up to the reality of what is occurring: the promise of the value proposition of I.T. offshore outsourcing isn’t always a slam dunk.  (On that note, you may want to check out this article in CIO Magazine October 3, 2008: Offshore Outsourcing: What Role Will The Recession Play?)

We are in the middle stages of what will probably be a deeper than normal recession.  As we look around the economic landscape, we can clearly see the devaluation of assets (stocks, real estate, commodities), as well as the inevitable salary destruction that is already happening.

While these cycles can be painful, they often sow the seeds of change that may in the long run benefit our much maligned I.T work force.  Arising from the ashes of downsizing, layoffs and outright closings, I see hope for our knowledge workers and workers from other fields who have had their livelihoods impacted from the offshore trend.

In my recent daily discussions with I.T. executives, the theme has been very consistent.  They’re really not saving much money using offshore resources.  When the hidden cost are actually accounted for, the real savings, if any, is very disappointing.

The fact offshore outsourcing really isn’t the silver bullet everyone thought it would be shouldn’t really shock anyone. The hidden costs were just to great.  The good news is, given technology and changing attitudes about remote work, the U.S. Knowledge worker is now in a much better position to compete with overseas resources.

Pun Intended

So this is my message: It’s time to Higher America

By Hiring America you will be elevating America.  We know these jobs are coming back.  The new administration and rising unemployment will see to that.  However, the hiring that will be done will be completely different then the traditional hiring that we’re all accustomed. Like all recessions, this one will leave a permanent mark on the hiring landscape, and may forever change management’s view of where a worker has to be located to be productive.  Soon, executives will come to the realization that if they were willing to let some one they didn’t know work half a world a way, then maybe it’s okay to let some one they in their own country work remotely.  Of course, there will be give and take on both sides.  For the employer, this will manifest in lower salary, real estate and infrastructure costs.  Employers will also be able to take advantage of lower cost jurisdictions that exist throughout the U.S.  For example, a financial institution in New York may be able to enlist the services of a mainframe programmer in Montana.  Obviously, the cost of living in Montana is a lot less then New York.  However, this still creates a winning situation for both sides.  The financial institution gets a lower cost resource without all the hidden costs, and the knowledge worker in Montana works from home, earning a good living in a lower cost area.

I’m very happy to report that we’ve already deployed this model with our clients, and it’s working out amazing well.  We call it the “Homeland Onshore Model” or HOM.  For example, we’ve been able to provide domestic mainframe resources with over 15 years of experience at rates which represent over a 50% savings versus their FTE cost  structure.

In a future post, we’ll discuss the structural changes that may take place and why the time has come for this model to be implemented on a much larger scale.

If you’d like to know more about HOM, please see our web site at:  www.ITOnshore.com.