Thursday, March 31, 2005

The Good, The Bad and The Ugly of Outsourcing...
Continuing a trend that will, eventually, make the other 1/4 of the world that isn't mad at us yet rethink that position. Here's yet another example of how far some businesses will go to shore up their...errr...bottom line. The following story was lifted from a post to

You know things have gotten out of hand when a can't-miss, sure-fire profit maker like phone sex gets outsourced.

In recent years, outsourcing has gotten a bad rap, mostly from people who have been tossed out of work, and I can understand their position. It's certainly not their fault that between benefits and employee taxes and the sheer greed of some CEO's that it's prohibitively expensive to actually hire someone these days. It's a golden rule in business, however, that when you can take advantage of lower costs, you'd be crazy not to. The advantage of outsourcing jobs to a foreign country, is of course, expense. In this case, not only will foreign workers in their home countries work for pennies on the dollar, they don't have any expectation of bennies. Yet.

Eventually, that part of the world that answers the phone for AOL or which makes a whole range of products for Wal-Mart will wake up and realize that while they are being paid a relative fortune now, they will certainly pay for it later. It's not like some guy in Pakistan has a 401(k) to lean on in his old age, or that National Health in India will pay for his Viagra. The workers there will eventually demand parity with what their Western counterparts get, or in this case, formerly got.

The upside to outsourcing from the worker's point of view (and there actually IS one, you know) is that the foreign employee is often not subject to U.S. law, which gets to be a pain in the ass for a company that outsources when it's been robbed blind by a contract employee in Bangladesh. Another upside is that it only takes one "ooops!", and the resultant lawsuit, for the outsourcer to rethink his relationship with the outsourcee. In recent years, this has happened already: I recall a case in Pakistan where a U.S. company that transcribed medical records suddenly realized it had given sensitive, personal information to an organized crime ring who used it for nefarious purposes. Imagine what would happen if the Russian mob got into some American citizen's banking or insurance records and started laundering cash. Don't laugh, it's probably happening right now and no one has noticed.

It's when things like this happen that the whole rationale for outsourcing, saving money, begins to look like a losing proposition. Eventually, the costs incurred by security measures, constant audits, and lawsuits, begin to tell. After that, it only takes one relatively intelligent executive to ask "Are the headaches worth the savings?" and the next thing you know, presto!, they start bringing those operations back "in-house".

My own personal experience after 20 years in the data processing industry have taught me three things concerning outsourcing:

1. At the end of the day, it's all about control. If you can't control your costs and ultimately your product, you start to get nervous. Executives are a bundle of nerves, most being little more than drones with too much to lose when push comes to shove. Rather than lose control over something, they'd rather take it back, no matter what it costs, provided it's important enough.
It only takes one to start a trend.

2. This isn't the first time a round of outsourcing or downsizing has occurred and it will not be the last. What's old is what's new. In my DP days, the mad rush was on to move to mini and distributed systems over mainframes because they were cheaper to operate in terms of power, cooling and occasionally, service. However, when the rush was on, nobody ever stopped to expend braincells on the issue of portability. Could the applications I run now, and depend on, be moved to a different operating system with different hardware and programming and run seamlessly? The answer was: of course not. The original stuff was designed and written to run in a mainframe environment and very often, making it work in the new environment meant massive amounts of money to re-write applications or a huge investment in consultants. Any real savings was virtually wiped out. In the end, everyone that mattered went back to a mainframe. The same thing is now happening with Linux --- the rage is the idea that you can write your own applications without having to license them. The downside is, you have huge costs associated with getting them to actually work the way you want to.

3. Today's outsourced worker is tomorrow's "must-have-guy" who can come back and name his own price. Once those applications, those businesses, are brought back in-house the people who formerly ran them usually get their jobs back and because there is a rush on, you can write your own paycheck. The rationale for outsourcing was to reduce employee costs; once the decision is made to un-outsource, the employee costs come back with a vengeance. Don't believe me? Ask all of those once-out-of-work cobol programmers who made it big again for the Y2K scare. They originally lost their jobs because they were useless mouths, but got called back when it found out that the legacy platforms and apps that were supposed to go with them never did.

Then again, think about this particular case. What happens when, for the sake of example, Western men who regularly use a phone sex service start getting upset by the bad service. I mean, who wants to talk dirty to someone who doesn't speak your language? What happens when the cultural taboos in the outsourcee country start making themselves felt, and millions of highly-paid Indian women suddenly start staying away from the job because they live in a society where a woman cna be burned to death for engaging in such activity? I can tell you what happens --- suddenly there is no longer a phone sex industry in India and the owners of the porn lines start to see their savings eaten up too as they get kicked out. Next thing you know, they'll be hiring all them Western women back just to break even!

No comments: