Painful lessons from IT outsourcing gone bad

[OhioChick]

In tough times, companies look to shift tech work to outsiders, whether offshore or down the street. Be careful: This "cure" could be deadly.

August 25, 2008

As companies look to economize in a weak economy worsened by rising energy costs, it may be more tempting than ever to consider outsourcing your IT -- whether to a cloud-based provider, to a shop in your town, or to a provider in some far-off land. Certainly, outsourcing has worked well for many companies, but it can also lead to business-damaging nightmares, says Larry Harding, founder and president of High Street Partners, a global consultancy that advises company on how to expand overseas. After all, if outsourcers fail, you're left holding the bag without the resources to fix the problem.

In his consulting, Harding has seen many outsourcing horror stories, from corrupt general managers "with all sorts of conflicts of interest" (such as service providers getting kickbacks from landlords on the leased space) to projects torn apart by huge turnover rates. "You end up with project teams that are hugely inconsistent. You might have a good team in place, but a month later, three-quarters of the team has transitioned," Harding says.

"Only when executed well can it pull out hundreds of millions in cost and transform organizations," says Brian Keene, CEO of Dextrys, an outsourcing service provider that focuses mainly on China.

In the sometimes panicked desire to save money -- especially with the powerful lure of "half-price" workers in places like India, China, and the Philippines -- good execution flies out the window. And that's where the problems flock in. Outsourcing is not for the faint-hearted or the ill-prepared. It just doesn't "happen."

That's why understanding what can go wrong before you jump into outsourcing is a great way to reduce your risk, because then you can approach outsourcing with eyes wide open, Harding notes. The companies who've lived through outsourcing horrors have two things in common: lack of preparedness going into a new relationship and lack of communication once the projects gets under way. Other factors can make these worse, of course.

Outsourcing's biggest horror show
In the pantheon of outsourcing horror stories, the $4 billion deal between the U.S. Navy and global services provider EDS stands out as one of the most horrific. It started back in 2003 when the Plano, Texas, vendor beat out the likes of IBM and Accenture for the contract. The deal was to manage voice, video, networking, training, and desktops for 350,000 Navy and Marine Corps users. But just one year later, EDS was writing off close to $350 million due to its inability to come even close to fulfilling its obligations.

More: http://www.infoworld.com/article/08/08/25/35FE-outsourcing-horror-stories_1.html

[SheilaT]

1. No real surprises here for anyone

who knows anything about IT.

My ex is the MIS Manager for a company that is a wholesale distributor. He's been there about 13 years, was originally hired when they got a new computer system. Since then a new warehouse system has been installed, and more recently another new computer system. I don't know if in either case anything was out-sourced overseas, but the outside vendors involved have always taken much longer and at least initially given a product that wasn't as good as it needed to be. One big problem in both cases is that the person in the company responsible for choosing the vendor has gone too much by price, and not enough by realistic expectations.

[RedLetterRev]

4. As someone who has worked in IT

since we called it "Data Processing" (30 years now) I've been watching disaster after disaster whose name is "outsourcing". I've poked holes in cards and paper tape, wired boards, once thought "glass TTYs" and 300baud modems were da bomb, now loving VS2005 and my smart phone and having Linux at home. At 51, I still can't get enough technology.

My job has gone "a larger outsourcing company" or to India more times than I can count and not soon after I'd moved on to somewhere else (another city, another company -- helluva way to see America, lemme tellya :-\) I'd get word that the company I'd left behind soon folded up.

How TF many times do you fruitlessly explain to the upper management that the company's data, their information, is an asset? If you let go of that, you let go of your destiny.

Then they throw it all away anyway. They didn't care then and they don't care now. I quit caring to explain it to them. The point I wanted to get across in my younger days (when I gave a shit) was: If someone else knows all there is to know about you, then they have complete control of you and can pull all the strings. A company's information describes every possible thing about that company: how it moves, how much money it has and where it is, where it comes from, where it goes, where the assets are, etc, ad nauseam. But that was never the point with those CEOs and CFOs. I've seen more than one small to midsized American company cashed out by unethical CEOs and CFOs who move on to wreck another company. They cash one out, move on, sell the bones of the prior company and drain the last of the profits from that. That was the point: to fail upward. Shrub isn't the only professional example of that business model.

And IT are always the first out the door. Been there, done that.

I've even worked for Perot Systems (talk about Playground Deluxe... it's wondrous what can be bought with endless money). But even that got parted out eventually. No one is immune if the corporate elites on the upper floors stand to make a little more take-home across your back, buddy. That, is guaranteed.

In the early '80's, they called us "grey-collar workers"; neither management nor rank-and-file. Professional, yet utterly expendible. We were always held in disdain by upper management as a necessary evil and by rank-and-file as eggheads. Upper management never caught on to the fact that it's difficult to regiment programmers the same way they could the rank and file (it's not easy being creative on demand, nor is our productivity readily quantifiable on spreadsheets). If they couldn't see and tangiblize our efforts, moment by moment, process by process, then obviously we just showed up to fuck off and anybody could be hired for, oh, 10% of the price to fuck off just as much.

Right?

Funny how things go to hell in a handcart when you put the higher-priced, experience, highly-trained professional out the door, and you bring in some kid for pennies on the dollar who can't keep things running. Then it gets even worse when you turn over every asset to a foreign national who reallllllllllly doesn't give a rat's arse how -- or even if -- your business runs.

They've sown the wind and I hope the whirlwind dries, withers up and blows them clean away. The results are clear to see. Irresponsible handling of in-house and customer data, compromises in security and customer confidence, data integrity loss, customer service that has fallen to the level of "we can't do anything about it and you'll just have to accept that"... and Americans wonder why we can't get problems addressed, let alone fixed, when we call someone on the phone.

[unblock]

6. you summed up quite nicely why i got out a few years ago

i started programming at the age of 8 before the beatles broke up.i was an early unix hacker and programming was an absolute blast.

but then management got the idea that they could take project management ideas that were quite literally developed to manage bricklayers and apply them to programmers. accurately estimating how long it would take to find a memory leak became more important than coming up with an idea or solution that made the program 10 times better. whatever.

i'm now on the financial modeling side and using sql programming only when the techies are too tied up. the financial side of things isn't great at the moment, but at least this is one industry they're not going to outsource any time soon.

[RedLetterRev]

14. I'm milking this cow only long enough

to get my farm going and get my wedding venue up. I've really had it with the "Microsofting" of the industry. When you create a product that makes programming so simple that an idiot can do it, every idiot will start programming. Hence, every idiot has, and the quality of the workmanship has gone out the window. Or Windows, as the case may be. Quantity became the emphasis over quantity, and the masses wonder why we have schlock on the desktop that functions barely half the time.

You get as good as you pay for. The maxim was never truer than when applied to IT.

Yep. Love my *nix. I'm running my house and farm/wedding biz on Linux. Works fine, lasts longtime.

[FatDave]

15. "another city, another company"

I used to call myself a migrant programmer. My oldest son is just started 3rd grade. He's in his 3rd school. I'm not moving again even if it means working at the kwik-e-mart.

[RedLetterRev]

17. I've lived in 10 of the Lower Forty-Eight

and have visited 38 on support calls. Eff that. I'm staying in rural NC. I pay good money for satellite Inter-toobs and can telecommute if need be. I've been more places than Hank Snow; glad I had the chance to do it when I was younger and wouldn't have traded a minute -- THEN. Now, I've got a partner of almost 13 years, three great dogs, almost 9 acres of rural bliss that I lucked into.

I'd rather dirt-farm than move again. I've trod through my last airport and been taken slap-apart at my last security check. If I can't drive or walk there, wherever "there" is, I ain't goin'.

[FatDave]

18. Funny the similarities

If I was single, or even if I was married without kids, I'd love the traveling and seeing the country. But my family and my career both developed in quick succession, but in the early days local work was plentiful.

Much like you, I bought 10 acres in rural Iowa, and I plan to stay. I get DSL (not very fast for DSL, but a lot faster than a 56K modem) and can (and do) telecommute.

I'm curious just how that dirt farming works. Like to keep my options open.

[RedLetterRev]

22. There comes a time when you get sick of being permanently transient

which is what the industry demanded from about 1985 on. I longed for any one permanent place in the world to be. There are a lot of pretty, tolerable places in the US and quite a few in which I lived that I perfectly detested. I loved NM and AZ, could tolerate but lost nothing in SoCal, loathed NJ and LA, loved parts of PA (the country) and hated others (the cities), think Chicago is the greatest city on earth (if you like cities), Dallas isn't what it thinks it is, Foat Wuth Ah Luv Yew!!!, Austin is all that and a bag of the really good stuff, Houston is a mess, you couldn't pay me enough to set foot in MS and AL police-states again (I have some scaryass stories), TN is gorgeous but red, Australia is too hard to emmigrate to (oh, but I would have, I love it so), I love Spain, the Netherlands and Germany but the same problems ensued, so purplish NC suits me right down to the ground.

After wandering the earth for 25 years, there's no place like home, Dorothy, though for 20 of it I swore I wouldn't set foot back here, either. Then the 2000 elections in Florida, Jeb Bush and his depredations, a Repuke mayor and scandalous Repuke shitty council in Fort Laud in the pay of nutcase fundypreacher D James Kennedy, plus a nutcase red sheriff (who was later busted in his own nefariousness) -- well, the republican destruction of a once-blue and once fun and once-beautiful and sleepy beach town finally tore it for me.

When repukes move in, crime, destruction, vast differences between wealth and poverty, corroding infrastructure, hyperregulation, ... ad nauseam, always and I mean always follow in their wake. I've seen it in state after state, city after city, town after town, county after county. I bear sad witness. The tale never, ever, ever any different.

They are pathologically, congenitally, genetically born to rape, steal, murder, defraud, lie and cheat. It is never any different. The only solution I have been able to find, to cope with the chaos around me is to find a job in a tiny but stable company that has exactly one product that serves exactly one very stable niche market. I found a small plot of arable land the will feed my family and me plus a bit extra for barter if the world suddenly goes pear-shaped. So long as I can either buy or brew fuel for my tiller, I can make it.

I feel sorrow for those who can't or deny that it's coming. I do believe the crash is coming for at some point that which was sown since the 80's will bear its rotten fruit. They can't just keep printing money and blowing into the market with nothing under it which is exactly what has been done since Shrub took over. The economy can't survive on McDonalds and WallyWorld greeter jobs. Unless we rekindle our educational system and regain our lead in bleeding edge technology (like that which made the moon shots possible), we'll all be dirt farming.

Those who are left, that is.

[Crabby Appleton]

16. Amen, Brother. nt

[SheilaT]

19. And the really sad thing is it's not

just that outsourcing is so awful, even though it often is. It's that management thinks that all employees are expendable. They simply do not understand that experience really does matter, even in the lowliest of jobs. They have no concept that if they treat the employees well, the employees will in turn treat the customers well, or will be willing to work hard.

And what really slays me is listening to baby boomers (I'm one) complain about the crappy work ethic of the younger generation. 1) That charge was laid on us -- and on every single generation before us -- at the beginning of our working lives. 2) Maybe the younger generation has seen how badly their elders have been treated and realize that there's no point in offering loyalty if it's not going to be given back.

[Tandalayo_Scheisskopf]

2. Well...

If this isn't a "My gums bleed for them" story, I don't know of one. I loved the story about the "major telecomm provider"(My informed bet is that it was AT&T).

[Larkspur]

3. To sum up this article, when management only uses bottom-line profit

as it's guide, outsourcing IT work is a bust. Serves them right.

[ihavenobias]

5. K & R

[Shanti Mama]

7. wearing flame-retardant clothing and head gear

I OWN an outsourcing company in Kathmandu. We create jobs for educated but less-privileged Nepalis who would otherwise have to leave their country, culture and families to find meaningful employment. We do excellent work, almost exclusively with small software companies that would not be able to continue building product if they had to pay American rates.

The folks who work in India and Indonesia and Argentina and Vietnam and Costa Rice etc for American companies need work just the way Americans do. And when Americans put an end to their consumer-mania (and unconscionably high CEO comp plans), just maybe the jobs can come home.

I hate having to decipher what the tech support guy from Mumbai or Mexico City is saying just as much as you all do. Please just remember there are indeed at least two sides to every story.

Now running to grab my fire extinguisher!

[Sentath]

9. Cool, I'm for people working.

But, I'm also willing to bet that you are at least a little selective about the projects that you will take on and that you put a fair to huge amount of effort into training your customers in the states in how to successfully outsource.

[northernlights]

12. the problem with your thinking, however

is that 1) we don't have authority over CEO's obscenely bloated salaries, and 2) if and when we stop our consuming-mania, there won't be any jobs to come home.

The sad messy truth is the world economy depends in large part on our consuming. Now that we can't afford our consuming-mania, due in large part to American jobs being shipped overseas, many other countries are going into recession. How deep and long remains to be seen, but given that we've been totally sold out back here, I expect very deep and very long.

And btw, I feel for your less-privileged employees who might otherwise have to leave their cultures and families to find employment. Just like so many Americans (including me) have been forced to do, thanks to our traitorous CEOs who have reaped all the top benefits of being American without paying any of the dues.

So enjoy your jobs while you've got them...and don't bank on either saving or investing to tide you over when the inevitable drought comes. The corporate rats will steal from you as quickly and ably as they did from us.

[Shanti Mama]

20. Thanks for recognizing that our employees are in need, too

I FULLY understand the issues you bring up. My only point is that there are more sides to this story than are represented in the article. Outsourcing is a very complex issue. So, every time you want to rant about a 'foreigner' taking an American's job, try also to remember that there are people on the other end whose lives are profoundly improved by this loss. It's a zero sum game.

[CrispyQ]

8. Not an IT story,

but I worked for a company that decided to move their small manufacturing plant to Mexico, certain they would save hundreds of thousands of dollars. Three years later they were still paying more than if they had kept the operation in the states. Insurance rates were astronomical! Two trucks full of finished product were hijacked on the way back to the states, one right before year end & they missed their sales figures because of it. They had issues getting the parts from China to Mexico in a timely manner. Their contract with the Mexican company stipulated that if there was no product to work on, the workers still got paid, so often times, we were paying our 'cheap' Mexican labor to clean floors or paint walls -- busy work, basically, cuz there was no product to build. I remember the day the CFO told me, "Mexico was the worst decision we ever made!"

What was really sad, was the manufacturing part of company was mostly staffed by local Vietnamese workers who made $7-$9 an hour with benefits & stock options. These were good paying jobs for lots of people who didn't speak English. None were laid off when manufacturing moved to Mexico, rather they didn't fill positions as people left & they found them other jobs in the company. However, a good job source was no longer available to that community.

[northernlights]

10. outsourcing can be truly deadly

I'm currently in school for health care to replace my lost high tech career. Boy are there some health care outsourcing horror stories out there. The good news is these actually stand to impact the "elite" at least as much, if not more than, everyday folks, seeing as they're the only ones that can afford health care anyway.

Top example: One of the reeeeelly big pharmas (Merck?) was up on capitol hill not too long ago getting a grilling. Seems they've outsourced manufacturing of one of their very popular drugs to China. Poisoned a few (thousand?) people back here. Last I read, the pharma believed it was deliberate.

Scary, scary stuff.

[ladywnch]

11. again, not an IT issue but still outsourcing......... I've been in both

IT and customer care (call centers) and while I am now (mercifully) in neither, I still stay in touch with past employers and coworkers. There are nightmares enough to go around. One call center VP I was talking with was telling me about the backlash being felt by outsourcing, the increasing costs, etc but he also talked about a new niche market emerging; that of the outsourcing rescue busines. Small new companies are now popping up to correct and undo the damage done by off shore outsourced companies. These companies takeover failed/failing projects from oversees and save the originating company money they were losing in cost overruns and missed deadlines from the offshoring. All said and done, they still end up paying more than if they had just kept the work in-house to start with. Good news for the new startups I guess.

[notadmblnd]

13. I'm not going to defend EDS but I can tell you what I saw

We had part of the Navy contract up here in Auburn Hills. We provided power for their servers in our raised floor environment. And I will say the system was so large that we had constant problems with over heating. Other than that, we were not allowed to touch their machines. That job was for another defense contractor that ran out of California. The name of the company slips my mind right now, but every few months we would schedule maintenance, order parts and they would fly in on the weekends to do what ever necessary in their attempt to keep them happy. EDS had no hands or eyes on their machines. I'm sure that having their hands tied up like that, made it a certainty they would not meet the Service Level Agreement (SLA), resulting in huge fines for downtime. Dumb EDS.

[JustAmused]

26. Low cost does not equal the same quality

I currently work for EDS...just sold to HP. Daily, I handle tickets from one of our Indian shops. Out of every ten I recieve, one is done correctly. It would be much better for the client to bring it all back here. If you pay one fifth the cost , but it take ten tries to get it right, isn't it better to pay twice as much per agent and have it fixed the first time? The bottom-line thinking that goes on never really addresses the actual cost.

[Skittles]

21. a big problem is sales people promising shit they know nothing about

*GRRRRRRRRRRR*

[OhioChick]

23. No shit. n/t

[Recursion]

24. Golden words more IT managers must read

The obvious lesson was the need to test your infrastructure before going live in an offshoring scenario.

That doesn't just apply to offshoring, but any scale jump. Way, way, way too many managers naively assume their infrastructure will scale.

[GOPBasher]

25. Awww that's so sad. Maybe they'll just have to give jobs to (horror!) Americans? n/t