Why do companies outsource?

Why do companies outsource?


The crusty old geek with 30 years of experience can’t get a word in as Adam, the 19 year old hot-shot system administrator, tells everyone how to do their jobs. “Your opinion really doesn’t matter, dude, you’re like old”, he says, as he adjusts his Linux World t-shirt. As BrokenToothpicks.Com stock soars to $300 a share and its 24 year old high school dropout CEO lashes out against the “old way of doing things”, Adam just might be right. People start to listen to these new brainiacs and Dot Com Rockstars who can do no wrong. Adam thinks he’s God. How can he not? He’s making money hand over fist and plans to retire to a private island just as soon as his options vest. Everyone else must just be an idiot—I mean, come on, how can they work for so long and STILL drive a used Subaru. Adam is the reason that houses are unaffordable, the stock market crashed, unemployment is high, and the bread you bought just the other day has already gone bad.

It takes all kinds

It takes all kinds of people for the world to run. Sometimes, people end up in the same place at the beginning of an evening but start out in completely different worlds. The types of people who ended up being important (or visible) within the Dot Com Boom were either the brilliant minds (wonder kids) with a crystal ball for a mind and ideas coming out of every pore—or the people who weren’t, but were told, nonetheless, that they were brilliant. See, in order to keep everyone happy, everyone was told that they were the best. There didn’t seem to be room for any junior level positions. During the dot com boom, the corporate ladder started at the top. Everyone was a Senior Vice President of their own cubicle.

There is so much that people don’t understand. One of the greatest lessons someone can learn is to know when their input doesn’t matter and someone else just might have better insight into a problem. In the real world, people at the highest level of knowledge in all areas were split organizationally. The techies ran the computer systems, the marketing department was in charge of spreading the word, the executives at the top knew how to keep the company afloat. Usually these areas of expertise were split and everyone understood their role. The system programmer wouldn’t tell the CEO how to run his organization.

All of that changed with the “success” of all these new startup companies. Starting a business became simple. A new “company” running out of an apartment all of a sudden had a market value rivalling 20 year old established companies. The 5 year business plan was now too slow. A CEO with a long term vision was told to speed things up. Senior Vice Presidents from these “successful” new companies were brought in to make things work. Their insight into the new ways to run a company was sought after.

Out went a solid business plan. Out went long term planning. Welcome to the Friday Beer Bash! Welcome to the video game room. Welcome to Nerf gun battles and quirky toys in the main lobby. Meet our new Vice President. Don’t mind the shorts and flipflops. He knows how the new world runs. The blinders went on and companies were magically headed, in all areas of the organization, by the new faces of success. There wasn’t room for anyone who didn’t jump on the bandwagon.

When a technology savvy kid is told that everything they touch turns to gold, what right does he have to think otherwise? When the technology savvy kid decides he’s accomplished all there is to accomplish in his field, who is going to tell him that his Midas touch can’t apply to other aspects of the company? So it begins. The dot com whiz kids invade the business world and show everyone that only their own ideas matter. And as stocks keep hitting new highs, everyone thinks they’re right.

The boom and the bustThe boom and the bust

Values in the old economy

Let’s step back a few years and try to remember the world when your parents graduated and they were ready to enter the job market. Educated (or not), your father walked into his first job at a big stable company. He came in at a junior position and eyed that corner office. “20 years and it just might be mine!”, he thinks. Work hard, show some loyalty, learn from the more experienced co-workers and everything will eventually work itself out. Time—there’s usually a reason that shortcuts aren’t the norm. Modesty—actually realizing that he still had a lot to learn. Patience—good things come to those who wait. Maybe he’ll retire some day and get a nice pension. A 1.4% cost of living increase after a year was appreciated and was cause for celebration. His goals were to provide for his family, himself, and eventually buy a humble home and a new economy car.

There was no such thing as getting rich quick, and money wasn’t wasted on frivolous luxuries. He worked hard for his money and saw no need to throw it away. He understood that you had to pay your dues to gain a full understanding of how things work.

These lessons were passed on to the next generation with a wink and hope that the next generation will work even harder and maybe have a little bit of extra breathing room.

Adam’s generation—focused on wealth, bling-bling, and instant gratification—laughed it all off. Adam knew better. He saw 30 years of work turn into pre-IPO stock options and the promise of a guaranteed retirement right away. Slaving away working for “the man” did not apply to his generation. Moore’s Law states that the speed of a processor doubles every 18 months. Internet Speed. Things moved faster in the new world. Expectations were high. Money grew on trees. Adam’s generation was happy to apply this law to their careers and all the pieces of their lives.

Unfortunately, the same “just do it” mentality had no room for planning, doing things the right way, or any sort of research. People sat down, put together a business plan, a web site, or some sort of bleeding edge architecture and weren’t around to pick up the pieces when things broke. See, they’d be retired in the Bahamas by the time their untested theories would be put to the test. And we let them do it.

I remember working at a company with many lofty goals and guaranteed success. The recruiter, during my interview, told me that everyone was already counting their money before a product had been developed. Venture capital was already there and any options we get would be worth millions. It was a sure thing. When I was interviewed, one clear business plan existed. When I signed the paperwork, the original plan had been scrapped and the company was going in a new direction. When I walked in the door on my first day, the plan had changed again. When I made this observation I was met with shrugs. “The market is dynamic. We’re adapting to it. We need to be on the ball to get the most funding. As soon as we find out what the venture capitalists want, we’ll stick with it”, said the head of the marketing department. He ended up leaving after a few months (and a few new business plans). It had been exactly one year since he had signed on. Part of his ungodly amount of options had vested. It was time to move on to the next place. His plan? No one really knew. See, according to the plan, the first few months was research. The deliverables were all due after 13 months. He left after 12. When the next marketing executive came in to pick up where he left off, he found nothing. The cycle started over again. Everyone seemed to be too scared to question anything anyone was doing or they were left with an angry employee crying about being misunderstood. Think of professional sports. No loyalty, just whining.

I’m under the impression that everyone during the wonderful economic boom we experienced, only knew how to talk and not how actually deliver anything useful. Their justification must have been that if the company itself didn’t do anything, neither did they.

Demand and lowered expectations

As people started to see the potential of the Internet and the New Economy, every kid who knew Linux (you’re senior, an expert, a master after installing it just once, right?) was sought after to help get new money making web sites on the network. All you needed to start a new company was a domain name, a network connection and a stupid idea. Former insurance salesmen (and now current Dot Com CEOs) wanted to quickly hire the Linux kids to set up their new companies for them. As these retired restaurant managers came up with even more ideas (“What if we set up a company that sells mismatched Tupperware online?!”), these former cab drivers (and Dot Com Visionaries) had a smaller and smaller pool of people to pick from. “Ok, so what if he can spell Linux. He might do”, goes through the thrifty minds of the former gun shop owner-turned Internet Entrepreneur.

The goal of all these utterly unqualified web company owners was to set up their web site and think of the ways they would spend their billions and billions of dollars. “Sure kid, you can be a senior engineer. Just get the box up and running.”

“Sure kid, you can be a senior engineer. Just get the box up and running”

Meanwhile, in the real world, the older generation, with real experience, was either ignoring this or was predicting failure. How could someone with no experience in business understand the inner workings of running a company? Wasn’t there a reason people went to school? Wasn’t there a reason that books on business were written? Didn’t experience matter?

I guess not. Brilliant minds were ignored (too expensive) and the new economy was driven by the jeans, t-shirt and souped up Honda crowd. The old methodologies were ignored and it seemed to be working.

Before too long, your favourite barrista (A barrista is to “dude who makes coffee” what a sanitation engineer is to “dude who removed garbage”, no offense) ditched their frock and became an HTML engineer. Cough. No, wait, a Senior HTML Programming Engineer. Or, if they were really, really good at using Front Page, a Director of HTML Engineering. We had created a world where we would hire anyone, give them whatever titles they wanted, just to get our new world companies up. At the top, no one really knew who was doing a good job or not, who was qualified and who wasn’t. It didn’t matter. We were just waiting for the money to roll in. Diluting the job market with unqualified dorks didn’t make a difference—we’d all be retired in Bermuda in a couple of years.

It didn’t always happen that fast but some money did roll in. Kids ran the company computer systems and had the power. If the 6 month promise of riches started heading towards a year, a threat of quitting and leaving you to manage this mess resulted in a new title and more money. It was sort of like blackmail.

If the 6 month promise of riches started heading towards a year, a threat of quitting and leaving you to manage this mess resulted in a new title and more money. It was sort of like blackmail

I like the shiny one

Trust fund kids or the Paris Hiltons of the world really don’t understand what it takes to make money. It all comes easy. There’s no reason to save for a rainy day when it doesn’t rain in your world. When my sister was younger, she said that she wanted to have a big limo and live in a mansion. My father quickly snapped and told her not to think like that. No one needs a limo and a mansion to be happy. No one needs one for any reason, really. I was scolded in similar way when I whined that I wanted the hard cover prestige version of Robinson Crusoe instead of the paperback version. They’re the same text. Why pay ten times as much for a pretty cover? Neither my sister nor I really understood back then because we didn’t work. Money was created magically and came from Santa in envelopes, and all the clothes we wore grew inside shopping bags our parents unloaded from their car. Of course, in the world my parents lived in, they worked hard for their money and saw no reason to waste it.

When I got my first job I understood. When many Dot Com kids got their first jobs, they didn’t. Money came easy from the beginning. There was no struggle or appreciation. There was no long delay and the pain of climbing the ladder and sucking up information from the more seasoned people. They all bought the prestige versions of Robinson Crusoe for $60. I got my enjoyment out of the small soft cover version that I kept in my back pocket. I had better uses for the $57 left over.

The Aeron chair—the shiniest symbol of comfort and excessThe Aeron chair—the shiniest symbol of comfort and excess

Free software generation

If you read rants from some of the old school hackers, one of the most common reasons for hacking was gaining access to these crazy computer systems that weren’t available to people outside of the corporate world. We had DOS 2.1 running on an XT. Out there were mainframes, X.25 networks, and wonderful new operating systems that we wanted to learn. The multitasking power of my 486/33 running DesqView really didn’t compare to a UNIX box. The desire to learn was there. There just wasn’t a way to touch these machines from our own bedrooms.

Free software came to the rescue. I still remember sitting in a dark pizza box filled room (smoke in the air, open computer case, internal drive sitting externally on a cigar box, add some techno music and black light posters for the stereotypical hacker effect) with a stack of floppies installing NetBSD after the 11 days of downloading. The stupid.. err, hardcore (and we sure were) didn’t label the disks so we lost the order a few times. Some disks were corrupt. We eventually managed to do it and hooked up our 2400 baud modem. We called up a friend and had him call. Characters were off—7E1. Just like a real UNIX box. Hardcore. We finally had a playground on which we could learn the inner workings of UNIX. And we did. Eventually, our knowledge of UNIX was intense and came from personal experience, not the college classroom. The solutions to our problems came in the form of programming and scripting. We hacked together crazy and awesome environments without any formal training. In time, we knew more about the inner workings of these operating systems than most people who went to college for this stuff.

In time, we knew more about the inner workings of these operating systems than most people who went to college for this stuff

When entering the corporate world, we became the underpaid geeks who walked in and could solve problems the highly paid “engineers” couldn’t. It didn’t take long to realize that we were smarter than everyone else and actually understood how things worked. If we could do it at home, why couldn’t the same techniques and ideas work at the office? No reason. They did. Our generation, with jeans, t-shirts, tattoos, piercings, bad hair (and hygiene) took over. In the process, we disregarded anything the previous generation told us—why listen to them about anything when they don’t even know how to configure X11R6 or reprogram a broken EEPROM on a SparcStation 2?

We didn’t understand the need for procedures. We didn’t understand that someone else had to run these systems if we ever left. We just knew how to put together brilliant hacks (and be sure they were hacks) that kept things running. It seemed reasonable to suggest a two week project on cheap hardware instead of the multi-million dollar implementation that the company were leaning towards. At first, we sometimes won the battle. As we ultimately infiltrated the corporate world, we always won the battle. But the losers weren’t just the old generation of “engineers” we ultimately replaced. The losers were the companies left with our duct taped hacks. No one was really aware of this until the day came when we just walked away to get a different job and left behind a mess that only we could run.

Free software gave us the tools we used to learn. College and experience would have given us the tools to apply our knowledge for the greater good. It would have given us the ability to see beyond what we saw.

Everyone lost

Companies no longer want to hire the enthusiastic kid who comes in, changes everything to fit within their personal knowledge base and then leaves. No loyalty. We demanded more money. We demanded special treatment. We told everyone that our six months of experience in the new world was just as good as 20 years of experience in the old world. We got cocky.

Our fore-geeks (I can make up words, right?) were given pensions, amazing benefits and whatever the corporate equivalent of tenure was. The company treated them right because they treated the company right. They took responsibility and always did what was best for the company. They knew how to finish something they started. There were some amazing people out there doing our jobs. Some of them still exist. In those days, you were still a newbie after 5 years. You were a lifer at 30 years. Companies didn’t have to worry about being left with undocumented crap. People had discipline.

Today companies have to worry about being left with a mess and assume that everyone is going to leave for the next thing that shows up. Money spent on benefits went towards peace of mind. Eventually, this peace of mind turned into hiring a “position” and not a “person”, shifting the responsibility to consulting companies. Let someone else deal with the turnover and the mess. John leaves? No problem. The consulting firm brings in Kenny, who picks up where John left off. This caused a shift of the important job functions from employees to consultants, contractors, and “resources” outside of the company. I guess it seemed to work. Eventually entire departments were staffed by “job functions” rather than people. And when you don’t have to deal with people, it becomes a numbers game. You fire a firm and replace it with a cheaper one overseas. These firms compete and offer to take over more and more job responsibility just to get the contract. To make up for this, they hire a Redundant Array of Inexpensive People. In India. In Russia. In China.

This was payback for the mess we created. You moved on. Others, after 20 years of showing loyalty and doing their jobs were, were left in the dust. Oh, and we moved back into our parents’ basements and shrugged.

Bibliography

Jackiewicz, Tom “Deploying OpenLDAP”, Apress:2004

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Comments

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Submitted by admin on

From: zed
Url:
Date: 2005-10-05
Subject: entertaining read but not correct

It's telecomminications technology and infrastructure which has allowed offshoring to work.

Already manufacturing of mass-consumer goods had moved 'offshore', to lower-paid workers, 'IT offshoring' is just the same thing. It was just waiting for the right technology (and other factors, like education) to come along to make it ecomonically viable.

It has nothing to do with inexperienced companies going belly up because of incomplete business plans. Or nurf battles. Or even IT out-sourcing, which is just economically driven.

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From: anonymous
Url:
Date: 2005-10-07
Subject: laws and unions

if anything this makes me think that employment laws regarding age discrimination - both during the hiring phase and in the workplace - need to be re-evaluated.

also, i wish there was a rise of unions again, especially in the technology space. too many certifications (from large corporations) and not enough ground-roots efforts by the workers. telecommunications had to have it (well, they also needed regulations, which the internet clearly does not).

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From: Andre Holliday (SUBSCRIBER!)
Url:
Date: 2005-10-12
Subject: Don't be too quick to let the companies off the hook

Tom makes some good points in this essay. He laments the passing of an era where certain virtues used to thrive; I also miss those days. I'm looking forward to part two, but a little history is in order.

In the 1980s and '90s, quite a few big companies betrayed the loyalty that Tom and his sister observed in their parents toward their employers and work. Merger mania was all the rage, and firing as many workers as possible was looked upon very favorably by Wall Street--the more workers axed, the higher the stock prices climbed. People who had made lifelong contributions to their employers in the form of work well done, consistent progress, high-quality customer service, and who felt a general moral obligation to do right by the companies that had done right by them, were gratuitously cast aside.

As a consequence, the idea of being loyal to companies that engaged in such boorish behavior was viewed as misguided at best. Withholding loyalty from them was indeed a healthy response. Unfortunately, most companies, if not all, were deemed suspect, so that anyone loyal to any company was perceived to be a chump.

As it became more fashionable for companies to "downsize," some people questioned whether the old, tried-and-true fundamentals still applied in this new world of chainsaw management. If some old, venerable firms were succeeding quite well by unceremoniously dumping good, hard-working, loyal employees, was loyalty necessary? could it be a liability? Could a slow and steady pace be too slow to win the race? Why were so many in middle and upper management so eager to dispense with long-term visions that required planning, consistent execution, and a loyal workforce to bring them to fruition--a loyal workforce whose absence could only result in failure? The Adams of this world did not have the power to create this sorry state of affairs.

I suggest that many big, stable companies created this environment, and that they did it by recklessly turning their backs on loyalty and long-term planning, and by pursuing quick riches with willful disregard for the inevitable consequences. I would further suggest that those companies chased the best employees away, because said employees were deemed to have "too-high" salaries, even though they had earned every penny with high productivity, excellent customer service, and--need I say--loyalty. There was a deliberate policy of replacing them with less experienced, nay, inexperienced, workers because they could be paid a pittance. These companies fomented fear, distrust, and nurtured an otherwise poisonous atmosphere, by so shabbily betraying good, solid, reliable, loyal workers.

Now that those companies have apparently killed the golden goose here, they seek it elsewhere, lamenting that our workers are uneducated, unskilled, inexperienced, impatient, have no regard for customer service, and, above all else, lack a sense of loyalty. In this way, they sowed the seed that became Adam, irresponsible and destructive, running away from the mess they had made, leaving suffering in their wake. As bad as Adam may seem, these companies are far worse, because they used to know--and do--better.

If these same companies stay the course they have been on for some twenty-odd years, they will kill whatever golden goose they find in the host countries to which they are so enthusiastically outsourcing everything.

________________________________________

From: Tom Jackiewicz
Url: www.sun4c.net
Date: 2005-11-28
Subject: Comments

Andre,

I'm hopefully going to explore the situation from all sides. You make some good points and that side of things will definitely be taken into account.

I just wanted to place a bit of the blame on my own generation for things because it seems to be too easy to blame everything on the companies -- though they do deserve a hell of a lot of blame.

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Tom Jackiewicz's picture

Biography

Tom Jackiewicz is currently responsible for global LDAP and email architecture at a Fortune 100 company. Over the past 12 years, he worked on the email and LDAP capabilities of the Palm VII, helped architect many large scale ISPs servicing millions of active email users, and audited security for many Fortune 500 companies. Jackiewicz has held management, engineering, and consulting positions at Applied Materials, Motorola, and Winstar GoodNet. Jackiewicz has also published articles on network security and monitoring, IT infrastructure, Solaris, Linux, DNS, LDAP, and LDAP security. He lives in San Francisco’s Mission neighborhood, where he relies on public transportation and a bicycle to get himself to the office-fashionably late. He is the author of Deploying OpenLDAP, published by Apress in November 2004.