Robert Cringely has two articles related to I.T. outsourcing. The first is titled Body Count: Why Moving to India Won’t Really Help IT and the second is called May the Source Be With You: IT Productivity Doesn’t Have to Be an Oxymoron, but Outsourcing Isn’t the Way to Achieve It. The underlying problem has to do with bureaucratic inefficiency (a conflict between the proximate incentive of division managers & the ultimate goal of a given company). I have excerpted some interesting parts below, you should read both columns in full, Cringely is all about hyperbole, he’s a tech columnist after all, and he has his biases, but he’s always entertaining….
Update: I have to include the sequal to Foreign Customer Service SUCKS!…. There were a few things I left out. Not only does DELL’s customer service suck, their automated touch-tone system sucks. For instance:
- Tech Support guy tells me he can’t track my order, but he’ll forward me to the automated service tracker
- Automated service tracker wants my service tag, I enter it
- Automated service tracker forwards me to another set of touch-tone options, another one among these is listed as automated service tracker, so I select it
- Automated service tracker #2, which has a malesque voice instead of a female one, asks me to enter the service tag, I do, and I’m forwarded too….tech support guy!
Something is really wack at DELL. On the other hand, a shitty automated help system is CHEAP compared to people, and shitty foreign customer service is CHEAP compared to native English speaking customer service, so profits are probably going up. Should I even add that I asked them to look at my modem because it was acting up *twice* and the form that shows what the technician tested indicates that the modem wasn’t examined?
From article one:There is somewhere in almost every company a spreadsheet showing a cost-benefit analysis for every worker. It all comes down to a single lifetime number that is the difference between the expected earnings to the corporation that are made possible by the direct labor of that employee, and the total cost of that employee to the company in current wages and future benefits. Nobody admits the existence of this spreadsheet, which is probably illegal, but it is there. And at some point, it indicates in many cases that a worker has reached a condition where they are likely to cost the company more in future benefits than they will earn the company through future labor. At that moment, that employee becomes expendable….
Big IT companies think in terms of billable hours, and the way to maximize billable hours is by having lots of workers. Headcount is everything. It not only determines potential revenue, it also determines political power. If my division is bigger (has more people) than your division, I am more powerful you, you worm.
Since the start of the PC revolution, Information Technology has come to pervade the enterprise. Every desk has a computer, and every computer has a technician. A few years ago, experts started noticing that the productivity gains we expected for our MULTI TRILLION DOLLAR investment weren’t coming through. “Next year,” said the Chief Information Officer on his way to hiring a bunch of new people. “Next year.” Only next year never comes.
Which brings us back to India and offshoring. So IBM and a number of other companies will send jobs to India. Profits will rise, but no head counts will drop. Head count will rise, in fact, because the heads are so much cheaper. Productivity for these offshoring companies will not rise. It will fall. It will fall simply because of the added overhead to support those longer information supply lines. And service to customers will not improve at all.
Just as an example, there are programmers who are a hundred or a thousand times more productive than their coworkers, and every Silicon Valley startup is constantly on the lookout for that kind of genius. Those people work in big companies, too, but their impact is muted. What manager at any big company would trade 100 workers for one, no matter how smart the one? No manager would do that, and yet they should. Power and efficiency are in conflict here. And that’s why we can scale up the software and the hardware, gaining efficiencies along the way, but we don’t do that with people. It’s not that we can’t, we just don’t. It is a disservice to customers and a drag on earnings. There is no rational justification at all for this headcount mentality, yet it still exists.
From article two:
Now another question: Why are Linux computers gaining in popularity with large organizations while Macs, which are based after all on BSD Unix, aren’t? While there is certainly a lot to be said for Linux in competition with various flavors of Windows (Linux is faster, more memory-efficient, more secure, has more sources of supply, supports many more simultaneous users per box in a server environment, and is clearly cheaper to buy), the advantage over Macintosh computers is less clear.
Again, it comes down to the IT Department Full Employment Act. Adopting Linux allows organizations to increase their IT efficiency without requiring the IT department to increase ITS efficiency. It takes just as many nerds to support 100 Linux boxes as 100 Windows boxes, yet Linux boxes are cheaper and can support more users. The organization is better off while the IT department is unscathed and unchallenged.
I am not claiming that every organization should throw out its PCs and replace them with Macs, but the numbers are pretty clear, and the fact that more Macs don’t make it into server racks has to be based on something, and I think that something is CIO self-interest.
Macs reduce IT head count while Linux probably increases IT head count, simple as that.
What’s ironic in this IT outsourcing is that the end game has not the big U.S. companies winning, but their Indian subcontractors. This isn’t rocket science, and the Indians are going to quickly see that they can cut out their U.S. employers and go directly to the customers. It won’t happen immediately, but eventually every U.S. outsourcing vendor will try to bring the work back in-house for this very reason. And we’ll be paying for it all.
Cringely is often smart, but he’s being dumb in these articles. He’s correct that outsourcing is partly a legal way to get around anti-age discrimination laws in the US. But it’s more than that – it’s about getting competent programmers at much lower prices than in the US. Part of that is because of US regulations (like hiring & firing restrictions, etc.) and part of that is because of purchasing-power-parity considerations. That is, the “anti-age discrimination” laws are just one of many hiring & firing regulations that drive up the price of skilled labor.
All the rest about “selfish IT departments” is foolish. If the IT departments were so selfish and non-productive, at least a few companies would start to pare them down as the reductions would positively impact the bottom line. That’s capitalism at work. Oh yeah, and as for the bit about why people don’t use Macs on the server side? It’s because they suck (expensive + limited software).
Outsourcing’s success or failure will also be capitalism at work. Maybe these Indian & Chinese programmers really are as uncreative and foolish as the guys at Zazona and VDare think. If so, the product will suck, and we’ll see a return to US programmers, as it will negatively impact the bottom line.
Personally, I consider such objections (often filled with cultural ad-hominems against “suttee”, etc.) to be the wishful thinking of displaced nativists. This kind of economic nationalism was encountered and defeated in the 80′s when union workers tried to prevent foreign competition from Japan. It’s rearing its head again in response to skilled outsourcing and “trade deficits”, as populists like Buchanan jump on the bandwagon. The fact is that free trade boosts the standard of living of the consumer, and those who’re rendered obsolete need to just suck it up and retrain. Tariffs and protectionism hurt everyone, as the recent steel tariffs fiasco shows:
Before the tariff, 5 percent of the steel used in the United States was imported. Because of the new 30 percent tariff, the other 95 percent also has risen in cost, said Alexander. This means that many automotive parts can no longer be bought at a reasonable price. If the steel tariffs continue, there will be a wave of plant closings, predicts Alexander.” What we did in trying to save steel jobs is destroyed a lot of steel-consuming jobs,” he said.
Buchanan’s philosophy is just nationalism plus socialism. Like its economic handmaiden (autarky), we need not be reminded of the long list of failures such an ideology has occasioned.