I have written previously about the downside of outsourcing in two previous papers:

Outsourcing doesn’t save, it costs; and

Outsourcing will destroy the West.

From the above you may conclude that I am not a big fan of outsourcing and you would be correct. I have previously declared my bias and whereas my comments are largely directed at the IT industry where I work, they also apply to all industries.

Outsourcing exports jobs, exports wealth and demonstrably and significantly lowers the quality and reliability of our products, software applications and business websites. It also removes employment, training and experience opportunities for our young people.

In addition, another result of the IT outsourcing disease that began with the great fraud of Y2K is that the IT industry has been dumbed-down to such an extent that we now accept mediocrity as normal.

Let’s review that last statement; we now all accept mediocrity in IT projects as normal and, even more scarily, as totally acceptable.

For example, we all seem to accept that business websites, even of our big banks, are buggy and frustratingly difficult to navigate, especially if we want to do something even a little unusual.

Most big companies, especially airlines and travel sites and government departments tell us to do everything online but then present us with badly designed, buggy and frustratingly difficult to use websites.

How often have you had to search the website for a phone number because you weren’t able to do what you needed to do on the website or because you weren’t sure whether the transaction completed or not? How depressed and further frustrated were you when you discovered that the phone number took you to an offshore call centre?

As an IT professional responsible for major systems how frustrated are you having to ‘repair’ the buggy and carelessly tested (if tested at all) code that arrives from the outsourced developer? How many long hours do you and your staff have to spend trying to install the new code and stabilize it? How annoying is it having to support a sub-standard product that you would never put your name to? Have you given up trying to understand the objectives and motives of your senior executives who just don’t seem to care about anything but lowering costs and bigger bonuses (for them, not you)?

Another follow-on of this insidious dumbing-down process is that we now accept lower standards from our local staff. The ‘new normal’ established by outsourced work now means that we seem to accept faulty applications and faulty websites as a matter of course even when developed with local staff. What an awful trend.

We remove employment opportunities from our young people and export them to far away counties where the standards are far lower than ours. We accept the resulting poor quality workmanship as an acceptable trade-off for lowered costs and higher profits. Some executives even have the audacity to call this improved productivity.

Does any senior executive really think that the foreign nationals working on your projects really care a hoot about quality or your company or your customers or especially, your local employees? Do foreign workers really have the same pride in your products as local employees? Do foreign workers have any loyalty whatsoever to your company?

What is wrong with this picture?

Don’t we want our employees to be loyal and to take pride in their work and to care about our reputation and to care about our customers? Shouldn’t employers in turn be loyal to their employees? It doesn’t seem to be the case for many of our larger corporations.

Can we draw a long bow and generalize and say that executives that habitually outsource don’t care about product quality or staff loyalty or their company’s future or their employees or their customers? It certainly seems so to me.

Let’s talk about the economic impact. Outsourced staff spend their salaries in their home country, not here. In addition, every job outsourced means one less job here and that means less spent here to fund our economy and less taxes here to run our country. It also means less capital for local companies and entrepreneurs.

Do I think that a senior executive will read this blog and then say, “Good thinking Frank, I will review that decision I made to outsource those 30 jobs to India/Philippines/Thailand.” No I don’t; I think that the situation is now so bad that it is irreversible.

Depressingly, I think that the trend will accelerate and that in only a few years’ time we won’t make anything in this country. It won’t affect me too much because I am at the end of my career after 40 plus years in IT. But boy, do I worry about the future for my grandchildren and their children. The bureaucrats tell us we will all have to work in the services industry (does that mean working at McDonalds or at a hotel or resort or even in IT or financial services?).

My generation has already seen our manufacturing industry destroyed. We no longer make tyres or shoes or clothes and will shortly no longer make cars. It won’t be too much longer before we are totally dependent upon the outside world, especially the so-called third-world, for everything we consume. How secure a future is that?

Your generation dear reader, will most likely see most services, including IT and financial services, outsourced in the next few years.  The world is now so interconnected there is no reason to do anything in a high cost country like Australia including IT and financial services. All we will have to sell in the future is stuff we can dig up like iron ore and blind Freddy can already see how vulnerable that makes our economy.

What are we going to be left with in 10 or 20 years’ time? What are these ‘service industries’ we are all going to be working in? What will be our national Balance of Payments when everything we consume has to be imported? How independent can we be as a nation when we are massively indebted to foreign countries? What happens if they call in the loans?

How secure will this country be when we are dependent upon the third-world for everything? How vulnerable is our future security and prosperity?

Where will your grandchildren work?

Aren’t you just a little bit concerned?

I run a software company called Knowledgeone Corporation and I receive many unsolicited contacts a week from mainly Indian companies wanting me to outsource RecFind 6 development and support to them. They must live in a different world to me (which of course they do) because I hate dealing with outsourced anything, particularly help desks.

I have promised my customers I will NEVER outsource support (because they deserve better) and I have promised myself that I will NEVER outsource development (because I deserve better).

I regularly converse with my peer group in the industry and hear the horror stories from those that have had their development and/or support outsourced to an Indian or worse, Filipino location. I hear the same horror stories time after time.

The senior executive that instigated the outsourcing may well be getting bigger bonuses (or even secret commissions) and basking in his/her ‘success’ but down deep in the organization where the real work gets done no one is happy. The customers are also not happy and most would happily change suppliers if they could find an organization that hadn’t outsourced its development and support but that is a tough ask in today’s world where greedy and corrupt executives care much more about themselves than their customers and staff.

I have been managing software developers for over 30 years and I know for a fact that you cannot run a development team from thousands of miles away. My programmers sit outside my office and I talk to them multiple times every day and also hold regular formal review meetings. I also have them do peer reviews of work in progress and I regularly amend the specifications as we ‘discover’ roadblocks on the way to completion. They come and talk to me throughout the day and ask clarification questions or suggest better ways to do something.

The point is software development is an interactive, ‘living’ process that relies on the open exchange of ideas and a healthy interaction between team members. As the guy who writes most of the specifications I regard myself as a team member and most importantly, do not believe I am infallible. I need the interaction and so do the programmers. What we do is very, very complex and no one, even someone as experienced as me, can get the specification one-hundred percent correct on day one. Ego has no part in software development because this process is always one of cooperation, shared intelligence and open dialogue; the team produces the result, not the leader.

My peer group tells me that outsourced software development does not work even when you go to ridiculous lengths to make sure that the specification is as clear and as unambiguous as possible. By ridiculous lengths I mean doing things like actually coding the solution in process diagrams of pseudo code and creating all the algorithms and decision tables as addendums. The code that comes back is always immature, unfinished and lacking in core logic and architecture. It always has to be massaged by the local guys and even then it often goes to the customer in an unacceptable state. The ‘cost’ to the long-suffering local guys is high as is the degree of frustration. The monetary cost is rarely calculated because it involves additional time and lost time and delayed releases and much snarling and grinding of teeth most of which is invisible to the person on top who orchestrated the outsourcing just as it is invisible to other board members and shareholders. However, internal disgruntlement like this is a cancer and it will eventually behave like all malignant cancers and grow and spread and destroy.

It is a similar situation with outsourced support when the poor service level erodes customer loyalty over time and ensures a high customer churn rate. Again however, these ‘costs’ are rarely visible to board members and shareholders until it is too late.

I am pleased to see a new trend (in the USA at least) whereby companies are bringing back outsourced work (is it called insourcing?), employing locals and making their customers, staff and local city/town a lot happier. It is a great and welcome trend but so far it is just a trickle and there are still far more companies outsourcing than insourcing.

In my business at least (software development), outsourcing will NEVER produce the desired result if that desired result is focussed on quality rather than cost. Nor will you ever really save money because of the hidden and ignored costs that always accompany outsourced software development. I guarantee however that you will save money by insourcing because as long as you select your local team carefully you will be able to accomplish your work with just one quarter the number of programmers you had in India; hire quality, not make up numbers. Five experienced Americans or Australians or Canadians will easily do the work of twenty Indian interns and produce infinitely better code in the process. Never has that old adage been truer, “You get what you pay for”.

You will lose money, you will lose great staff and you will eventually lose customers if you put cost ahead of quality.

Bring it back in-house and retain your reputation, your best staff and your customers; it is a no-brainer if you really do have the best interests of your company, your staff and your customers at heart.

I own and run a software company called Knowledgeone Corporation that produces an enterprise content management solution called RecFind 6. As such, our business is the design and programming of complex, heavy-duty application software. This means that we do the hard stuff, including all of the invention, and that I need really clever and innovative and productive IT people (mainly programmers) to work for me.

I have written previously about how hard it is nowadays to find the quality of people I need, see my previous blog entitled “Where have all the good applicants gone?” However, there is an even bigger problem in our industry with an ongoing fall in standards that began way back with the Y2K problem in the late 1990’s as everyone panicked about the problem of date handling once the year 2,000 clicked over.

The problem was basically one of greed where emerging countries like India realized there was a lot of money in providing IT expertise and started mass-producing so called ‘experts’ and shipping them all over the world. Very soon a resume or list of qualifications or certifications was all that was needed to convince paper-bound and rules-bound bureaucrats that an individual had the prerequisite skills to either immigrate or be awarded a work permit.

And of course, young people in countries like India and Pakistan and the Philippines moved into the IT industry not because they were motivated by the prospect of becoming IT professionals but because it was their ticket out of poverty and an entry opportunity into countries like the USA, Canada and Australia. So, we started to fill up the ranks of IT professionals with people that did not have the aptitude or motivation, just a strong desire for a better life (and who can blame them?).

Greed raided its ugly head again as local executives linked bigger bonuses to lower costs and the Indian companies further reduced ‘real’ qualifications to increase the supply of experts. Universities also got in on the act, again motivated by greed (more students equals more income) and standards were again lowered to create  a production line mentality, “Just pump more out of the system, we can sell them overseas!”

The law of averaging applies and as you gradually increase the number of the less talented and less well qualified people into the talent pool the lower the ‘average’ standard becomes. It is analogous to starting with a glass of the best Scotch Whiskey and then gradually adding more and more water. After a while it isn’t worth drinking because it isn’t whiskey any more, it is just flavoured water. We have similarly diminished our IT talent pool (especially in the ranks of programmers) to the degree where the average programmer can’t actually program.

For a long while we imported tens of thousands of these less-than-adequate programmers and they filled up the holes in mainly large enterprises like banks and finance companies and the public sector where they could hide their lack of real expertise. However, and unfortunately for them, the Global Financial Crisis (GFC) has accelerated the growth of outsourcing (back to even less qualified people in places like India, Pakistan and the Philippines) and our recent immigrants are now losing their jobs to their home country-men. I find this ironic but maybe you don’t agree.

In another previous blog, the world according to Frank, I predicted a significant rise in unemployment numbers within our IT industry. I also said it has been happening for some time but that the real numbers won’t be clear until around mid-2013.

Greed will continue to drive the outsourcing phenomenon just as it will continue to drive the lowering of standards and the overall effect on our industry will be significant as the available pool of real talent becomes smaller and smaller. Similarly, local opportunities for real professionals are disappearing fast. Many of you will end up having to help justify your boss’s big bonus by approving software created overseas when it isn’t really up to scratch and many more of you will relegated to fixing the crappy code being delivered to your company from the outsourced incompetents. Not a good future for real professionals and definitely not an environment of high job satisfaction.

When I began as a programmer in the 1960s everyone I worked with was highly motivated and everyone had a high aptitude because it was such a difficult industry to enter. You had no chance of working for a mainframe vendor unless you scored at least an A+ on the infamous IBM or Burroughs or ICL or GE or CDC aptitude tests. We were a very small and very exclusive group and to my mind, a dedicated band of professionals who were in IT because we loved it and were really good at it. The average level of expertise was extraordinarily high and this is now patently no longer the case because our industry has changed dramatically since those early and halcyon days.

So what is the future for real IT professionals who are in this industry because they love it and are really good at it? Like with all things, I believe there is good news and there is bad news.

The good news is that as a true IT professional your value is higher but, probably much higher than the less-than-competent manager who is interviewing knows. This is because many incompetent programmers have now managed to become incompetent managers and this situation protects incompetent programmers but punishes highly competent ones. Basically, your manager isn’t smart enough to recognize how different you are to the average programmer in his team. This makes getting paid what you are really worth very difficult.

Ergo, if you are really good at what you do and want to be paid what you are worth and want to do challenging and satisfying work your only chance is to select a company doing challenging work and a smart manager to be interviewed by. Oh, and don’t select a company with a greedy CEO who is looking to increase his bonus by outsourcing (regardless of the result) and lowering costs to impress the board and or shareholders. Sounds like a tough ask to me, thank God I am self-employed.

Would I recommend the IT industry to any young person today in high school contemplating a future career? No I probably wouldn’t. I would probably recommend accountancy, business studies, medicine or dentistry instead. So where am I going to find the really bright, talented and motivated programmers I need in the future? This almost certainly doesn’t bear thinking about but maybe it is an opportunity as most problems are.

We need a new way to select and train IT professionals; the universities are simply not doing a good enough job. Is there anyone out there with the money, ideas and knowledge willing to set up a new kind of highly selective IT training program? If so, please contact me, I will be more than happy to be one of your first customers.