People First: Execs Worry About Effect On EmployeesPeople First: Execs Worry About Effect On Employees

Offshore outsourcing has created a backlash among many IT staffers, who blame it if they face unemployment or diminished career opportunities. But it may come as a surprise how seriously managers take those same concerns. Many consider morale one of the top reasons not to go offshore.

In a recent information Research survey of 300 business-technology executives, 60% of respondents say they don't plan to outsource offshore. The top two reasons are because it isn't appropriate to the company's size or strategy (see chart, below).

Third among the reasons is concern about employees, which outranks even concerns over security and quality of work. The decision often is tied to the personal convictions and philosophies of executives and managers making decisions about going offshore. Concern over employees is one reason Ben Williams, CIO at St. Joseph Health Systems, which runs 16 hospitals, doubts he'd ever send jobs overseas. "If you lay off 40% of your internal workers and take those jobs overseas, you're laying off families and personal income," he says.

St. Joseph isn't anti-outsourcing. It has outsourced about 95% of its IT staff, or 265 jobs, to Perot Systems Corp. The difference is that 85% of the company's staff was offered jobs with Perot, which Williams believes will provide more upward mobility and experience for his former employees than a health-care company's IT department. Those employees are on Perot's payroll, which has cut IT costs for St. Joseph, yet they work on-site for the health-care company. The company also has saved a lot of money by standardizing its processes through Perot, Williams says.

Still, he argues that the pure labor savings of offshore outsourcing is a short-term view, and companies should be looking at long-term and even societal issues, such as the future availability of IT talent if U.S. college students stop majoring in technology careers because they don't think they'll find jobs. "At its best, this whole offshore thing could level out the cost curve for domestic talent that skyrocketed in recent years," Williams says. "At its worst, it could be cutting off a source of talent that we're going to need in the long run within this country."

Jim Noble, CIO and VP at Altria Group Inc., the parent company of Kraft Foods and Philip Morris, says the recent enthusiasm for offshore outsourcing needs tempering. The company does some offshore outsourcing, but it represents a tiny fraction of its overall IT development work, he says. "The reason we do very little offshore is a blend of principles and practicalities," he says. "The tagline for this company is 'where people and performance make a difference.' And that's not one of those bland corporate taglines. We live our business decisions around that belief. So any outsourcing is considered as to whether it's the best choice for our people, and, of course, balanced with the performance of our business."

Altria has worked hard to improve IT efficiencies, which negates a need to send much of its work offshore, Noble says. One example is the creation of a business-processing center in San Antonio, Texas, a low-cost area compared with the environs around the company's U.S. headquarters in New York. And like Williams, Noble has concerns that massive offshore outsourcing of IT work could have negative long-term ramifications. "Altria tends to take a long view; we're not driven by short-term perspectives," he says. "We haven't focused simply on slash and burn."

Illustration by Jonathan Weiner

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