More knowledge work being sent overseas — impact unclear
Globalization may have gotten North American consumers liking the idea of cheap household goods from Cambodia and high-end gadgets from Japan and Korea, but it seems to have inadequately prepared the consumers for the notion that their white-collar office jobs could be exported one day.
And it’s not just customers who seem woefully unprepared. In the United States, lawmakers seemed to have been caught off-guard by the public’s ire when state governments sent their welfare services overseas.
Among observers and practitioners of offshore outsourcing, many would say that the corporate world has yet to discern all the consequences of sending abroad white-collar jobs. Even businesses don’t look like they’ve done much to anticipate the change. When asked about the role of the human resources professional in all of this, the only answer that came up was: “Firing the employees, of course. What else is there to do?”
You can’t fight against the business case made here, said Ramdas Chandra, international business professor at Concordia University’s John Molson School of Business. Offshore outsourcing makes business sense in the same way it made business sense to send manufacturing overseas 10 or 20 years ago.
Now, it’s white-collar work that’s being farmed out, thanks to advances in telecommunications, increasing skills levels in countries like India, China and Russia, and the wage differentials that would have three or five of these offshore workers working for the price of one at home.
It’s not just IT programming and call centres that are being “offshored.” Data processing, accounting, and a whole range of other back-office or business process work have been contracted out.
The advantage of these labour markets is not only that their workers are young and university educated, there are many of them.
Offshore outsourcing, said Chandra, has been going strong since the late 1990s, but people just didn’t notice it during the heyday of the Internet boom. Initially, computer programmers in India were recruited to help North American businesses scrambling to meet Y2K compliance. They soon exceeded expectations.
Bob Fabian, an IT consultant based in Toronto, pointed to the “capability maturity model” developed by Carnegie Mellon University’s Software Engineering Institute. (The model ranks capability from 1, where success is “ad hoc and depends on individual heroics,” to 5, which represents the capacity for “continuous process improvement, enabled by quantitative feedback from the process and from piloting innovative ideas and technologies.”)
“The Indians have opted to go through the discipline of working their way up the model. The Indian developers started in the 1990s and now, all the major ones can offer proof that they’re at level 5. What that means is once you give them the specification, they will deliver on time, within budget and to specifications. Consistently. And with numbers to prove it.”
And like Chandra, Fabian sees more offshoring as an inevitable.
“We may say it’s uncomfortable, it’s unpleasant, but in fact, world trade is forcing open markets in under-developed countries. And in exchange, they expect to have a fair crack at providing value into the developed countries. It’s an inevitable quid pro quo.”
Three models
The most common model used by companies that send work offshore is to contract it out. Another model, used by Montreal-based CGI, is to set up operations at the overseas location and hire workers from the local population. Yet another model is to go through overseas contractors that have set up shop in North America to handle project management and liaisons with the clientele. India-based Infosys, for example, has set up a global development centre in Toronto as well as other urban centres in the U.S., Britain and Japan.
The three models reflect different tacks to deal with the considerable problem of distance — cultural, as well as geographic and temporal. The farther away a vendor is from the client, the more room there typically is for misunderstanding, said Fabian. Thus, the greater the need for the client to document everything — processes to go by, outcomes desired.
James Toccacelli, director of communications at outsourcing provider EDS Canada, said organizations shouldn’t underestimate the complexity of offshoring.
“There’s no question that it’s more complex to manage a project when the people doing the work are offshore. What makes it less complex is if the work sent offshore is repeatable. When situation X develops, you always respond to it in the same way. The less ambiguity, clearly, the better,” said Toccacelli.
And organizations should prepare for disruptions, whether caused by a geopolitical event or a computer virus, said Toccacelli. They should analyze how much downtime an organization can withstand if the offshored work is disabled. If needed, organizations should consider running parallel systems in different offshore locations.
And if the work being sent offshore is front-line work, organizations should carefully select a vendor whose workplace culture is one that the organizations are comfortable with, because these vendors will become the face of the company.
At CGI, the 500 computer programmers employed in application development modernizing and testing at Bangalore and Mumbai are the new faces of the company, said Carol Ariano, vice-president of human resources and operations.
“Our whole philosophy is based on dealing with employees. Our belief is that as we deeply understand our clients’ systems and applications and processes, we keep building intellectual property among our people. We want that to be part of our company, not to outsource it to contractors and such.”
The CGI employees in India are managed under the same HR practices and policies, said Ariano. They have the same reporting structure, go through the same training, and are given the same incentives and opportunities to purchase shares as their counterparts in Montreal. They’re paid different wages, however, that reflect the labour markets they’re in.
And when a new client signs an outsourcing deal with CGI, “We don’t just mail the specs over there.” said Ariano. “We rely on a larger relationship than that.” Project leaders from India would come to Canada or wherever the client is located to spend time both with their North American CGI colleagues and the vendors to flesh out what the project looks like and who will be doing what.
They need to “fully understand how the application is used, who are the users whose requirements need to be understood, and what’s the mechanism by which all of that has to be organized,” said Ariano.
Not all work will go overseas. On occasion, CGI will even acquire expertise from the client to shore up the company’s in-house capacity to handle the job. A few years ago, when CGI took over the back-office work of Quebec’s Desjardins Group, the outsource provider hired Desjardins’ back-end staff, who effectively became CGI’s front end.
“If I’m in the client’s shoes and I can choose between different outsourcing companies and one of them is CGI, and the others have found a bunch of people who are in workshops somewhere, slaving away churning out code, that’s not our model,” said Ariano.
The long-term consequences
The image of code writers toiling away in grim conditions is certainly one organizations need to address. If lessons can be gleaned from the experience of manufacturing, organizations that offshore should anticipate a day when shareholders and customers alike turn their scrutiny on the labour practices organizations engage in, even halfway around the world.
Take Gildan Activewear, a Montreal-based T-shirts company employing 10,000 in 15 countries. The company joined the Fair Labor Association, which requires it to adhere to a strict code of labour practice and submit itself to fair labour audits.
“This kind of thing starts at the top,” said Stéphane Lemay, vice-president of public and legal affairs. “In a company where the founders don’t believe in good working conditions, you wouldn’t be able to implement this.
“But the founders Greg and Glenn Chamandy believe in good working conditions, because it makes good business sense. Where you have employees who are not happy, you can’t be productive, you can’t be successful, you can’t be competitive.”
At the moment, though, public debate is centred around questions of job loss in North America. In the U.S., some dozen state legislatures have introduced bills to curb outsourcing. And Congress a few weeks ago approved a spending bill with the provision that federal work can’t be contracted out overseas.
At the Software Human Resources Council in Ottawa, president Paul Swinwood worries about long-term consequences to the software industry in Canada.
“Companies are always looking for someone with five to seven years’ experience. If we outsource offshore the entry-level processing of all these things, then we had better put in place a really good temporary foreign worker or immigration process to get the people with five to seven years’ experience. We will have to go offshore to get entry-level experience,” said Swinwood.
“So I see a real conundrum in what we’re dealing with here. Yes, it makes sense, but we’re mortgaging our future.”
Chandra isn’t as concerned about the loss of entry-level work. He noted that India used to dominate in textiles manufacturing, until yet cheaper labour supplies in Southeast Asia drew those jobs away. That exodus, he said, freed up India’s textiles industry to turn its attention to innovation. Canadian companies could potentially undergo the same kind of transformation and maintain an economic advantage by concentrating on innovation and adding value.
“But if it’s high-end work such as research and development that goes overseas, that’s when I would worry,” he added.
Fabian understands the economic arguments. But he can’t shake off the uneasiness he feels, which in essence centres around the debate over outsourcing on the whole, not just outsourcing to foreign markets.
One can take the benign view, he said, that outsourcing has been around for decades, and companies have been outsourcing without realizing it. Compared to business models of the early part of the 20th century, companies today can seem like skeletons.
“If you go back to the days of Henry Ford and vertical integration, when they wanted to own the iron mines and the steel companies and the rubber companies, that seems to us now as very odd, very unusual,” said Fabian.
On the other hand, outsourcing taken to the extreme, can leave a firm owning nothing. “There’s nothing left that’s unique, that’s proprietary, that’s distinctive. It’s merely a web that brings together all the various sundries and suppliers. It becomes a completely hollow shell, and it can be blown away with the slightest of pressures.”
And it’s not just customers who seem woefully unprepared. In the United States, lawmakers seemed to have been caught off-guard by the public’s ire when state governments sent their welfare services overseas.
Among observers and practitioners of offshore outsourcing, many would say that the corporate world has yet to discern all the consequences of sending abroad white-collar jobs. Even businesses don’t look like they’ve done much to anticipate the change. When asked about the role of the human resources professional in all of this, the only answer that came up was: “Firing the employees, of course. What else is there to do?”
You can’t fight against the business case made here, said Ramdas Chandra, international business professor at Concordia University’s John Molson School of Business. Offshore outsourcing makes business sense in the same way it made business sense to send manufacturing overseas 10 or 20 years ago.
Now, it’s white-collar work that’s being farmed out, thanks to advances in telecommunications, increasing skills levels in countries like India, China and Russia, and the wage differentials that would have three or five of these offshore workers working for the price of one at home.
It’s not just IT programming and call centres that are being “offshored.” Data processing, accounting, and a whole range of other back-office or business process work have been contracted out.
The advantage of these labour markets is not only that their workers are young and university educated, there are many of them.
Offshore outsourcing, said Chandra, has been going strong since the late 1990s, but people just didn’t notice it during the heyday of the Internet boom. Initially, computer programmers in India were recruited to help North American businesses scrambling to meet Y2K compliance. They soon exceeded expectations.
Bob Fabian, an IT consultant based in Toronto, pointed to the “capability maturity model” developed by Carnegie Mellon University’s Software Engineering Institute. (The model ranks capability from 1, where success is “ad hoc and depends on individual heroics,” to 5, which represents the capacity for “continuous process improvement, enabled by quantitative feedback from the process and from piloting innovative ideas and technologies.”)
“The Indians have opted to go through the discipline of working their way up the model. The Indian developers started in the 1990s and now, all the major ones can offer proof that they’re at level 5. What that means is once you give them the specification, they will deliver on time, within budget and to specifications. Consistently. And with numbers to prove it.”
And like Chandra, Fabian sees more offshoring as an inevitable.
“We may say it’s uncomfortable, it’s unpleasant, but in fact, world trade is forcing open markets in under-developed countries. And in exchange, they expect to have a fair crack at providing value into the developed countries. It’s an inevitable quid pro quo.”
Three models
The most common model used by companies that send work offshore is to contract it out. Another model, used by Montreal-based CGI, is to set up operations at the overseas location and hire workers from the local population. Yet another model is to go through overseas contractors that have set up shop in North America to handle project management and liaisons with the clientele. India-based Infosys, for example, has set up a global development centre in Toronto as well as other urban centres in the U.S., Britain and Japan.
The three models reflect different tacks to deal with the considerable problem of distance — cultural, as well as geographic and temporal. The farther away a vendor is from the client, the more room there typically is for misunderstanding, said Fabian. Thus, the greater the need for the client to document everything — processes to go by, outcomes desired.
James Toccacelli, director of communications at outsourcing provider EDS Canada, said organizations shouldn’t underestimate the complexity of offshoring.
“There’s no question that it’s more complex to manage a project when the people doing the work are offshore. What makes it less complex is if the work sent offshore is repeatable. When situation X develops, you always respond to it in the same way. The less ambiguity, clearly, the better,” said Toccacelli.
And organizations should prepare for disruptions, whether caused by a geopolitical event or a computer virus, said Toccacelli. They should analyze how much downtime an organization can withstand if the offshored work is disabled. If needed, organizations should consider running parallel systems in different offshore locations.
And if the work being sent offshore is front-line work, organizations should carefully select a vendor whose workplace culture is one that the organizations are comfortable with, because these vendors will become the face of the company.
At CGI, the 500 computer programmers employed in application development modernizing and testing at Bangalore and Mumbai are the new faces of the company, said Carol Ariano, vice-president of human resources and operations.
“Our whole philosophy is based on dealing with employees. Our belief is that as we deeply understand our clients’ systems and applications and processes, we keep building intellectual property among our people. We want that to be part of our company, not to outsource it to contractors and such.”
The CGI employees in India are managed under the same HR practices and policies, said Ariano. They have the same reporting structure, go through the same training, and are given the same incentives and opportunities to purchase shares as their counterparts in Montreal. They’re paid different wages, however, that reflect the labour markets they’re in.
And when a new client signs an outsourcing deal with CGI, “We don’t just mail the specs over there.” said Ariano. “We rely on a larger relationship than that.” Project leaders from India would come to Canada or wherever the client is located to spend time both with their North American CGI colleagues and the vendors to flesh out what the project looks like and who will be doing what.
They need to “fully understand how the application is used, who are the users whose requirements need to be understood, and what’s the mechanism by which all of that has to be organized,” said Ariano.
Not all work will go overseas. On occasion, CGI will even acquire expertise from the client to shore up the company’s in-house capacity to handle the job. A few years ago, when CGI took over the back-office work of Quebec’s Desjardins Group, the outsource provider hired Desjardins’ back-end staff, who effectively became CGI’s front end.
“If I’m in the client’s shoes and I can choose between different outsourcing companies and one of them is CGI, and the others have found a bunch of people who are in workshops somewhere, slaving away churning out code, that’s not our model,” said Ariano.
The long-term consequences
The image of code writers toiling away in grim conditions is certainly one organizations need to address. If lessons can be gleaned from the experience of manufacturing, organizations that offshore should anticipate a day when shareholders and customers alike turn their scrutiny on the labour practices organizations engage in, even halfway around the world.
Take Gildan Activewear, a Montreal-based T-shirts company employing 10,000 in 15 countries. The company joined the Fair Labor Association, which requires it to adhere to a strict code of labour practice and submit itself to fair labour audits.
“This kind of thing starts at the top,” said Stéphane Lemay, vice-president of public and legal affairs. “In a company where the founders don’t believe in good working conditions, you wouldn’t be able to implement this.
“But the founders Greg and Glenn Chamandy believe in good working conditions, because it makes good business sense. Where you have employees who are not happy, you can’t be productive, you can’t be successful, you can’t be competitive.”
At the moment, though, public debate is centred around questions of job loss in North America. In the U.S., some dozen state legislatures have introduced bills to curb outsourcing. And Congress a few weeks ago approved a spending bill with the provision that federal work can’t be contracted out overseas.
At the Software Human Resources Council in Ottawa, president Paul Swinwood worries about long-term consequences to the software industry in Canada.
“Companies are always looking for someone with five to seven years’ experience. If we outsource offshore the entry-level processing of all these things, then we had better put in place a really good temporary foreign worker or immigration process to get the people with five to seven years’ experience. We will have to go offshore to get entry-level experience,” said Swinwood.
“So I see a real conundrum in what we’re dealing with here. Yes, it makes sense, but we’re mortgaging our future.”
Chandra isn’t as concerned about the loss of entry-level work. He noted that India used to dominate in textiles manufacturing, until yet cheaper labour supplies in Southeast Asia drew those jobs away. That exodus, he said, freed up India’s textiles industry to turn its attention to innovation. Canadian companies could potentially undergo the same kind of transformation and maintain an economic advantage by concentrating on innovation and adding value.
“But if it’s high-end work such as research and development that goes overseas, that’s when I would worry,” he added.
Fabian understands the economic arguments. But he can’t shake off the uneasiness he feels, which in essence centres around the debate over outsourcing on the whole, not just outsourcing to foreign markets.
One can take the benign view, he said, that outsourcing has been around for decades, and companies have been outsourcing without realizing it. Compared to business models of the early part of the 20th century, companies today can seem like skeletons.
“If you go back to the days of Henry Ford and vertical integration, when they wanted to own the iron mines and the steel companies and the rubber companies, that seems to us now as very odd, very unusual,” said Fabian.
On the other hand, outsourcing taken to the extreme, can leave a firm owning nothing. “There’s nothing left that’s unique, that’s proprietary, that’s distinctive. It’s merely a web that brings together all the various sundries and suppliers. It becomes a completely hollow shell, and it can be blown away with the slightest of pressures.”
