Grasping, Greedy, Unpatriotic? Not Me
Grasping, Greedy, Unpatriotic? Not Me
Date: Sunday, April 27, 2003 11:46 AM
H-1B and JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
The links to this two part series:
http://www.businessweek.com/smallbiz/content/apr2003/sb20030411_0389.htm
http://www.businessweek.com/smallbiz/content/apr2003/sb20030425_0930.htm
http://www.businessweek.com/smallbiz/content/apr2003/sb20030411_0389.htm
APRIL 11, 2003
KENTON'S CORNER
By Christopher Kenton
The Woman Behind the Code
Offshore programmers save me money, which is wonderful. The absence of
human contact, however, is a definite loss
For the last six weeks, I've been exploring the market for offshore
technical labor. My company provides application design and development
as one part of our integrated marketing services, and we've been
watching large numbers of development projects move overseas to cheaper
offshore locations. The trend has been moving full bore, with large
businesses like Oracle and Dell shifting entire divisions to places
like India, where the hourly wage is low and technical skills are high.
But in the past few months, a shadow market has begun to emerge for
offshore programmers working on an hourly or per-project basis, with
all transactions occurring over the Internet (see BW Online, 3/24/04,
"Surfing for Offshore Labor").
The opportunity for a business like mine is significant. Highly skilled
programmers in the U.S. earn anywhere from $75 to $300 an hour. This
makes software development exceedingly expensive. When the economy
stalls and competition rises, pricing pressure squeezes our margins to
the point where we're barely covering our costs. Finding a cheaper
source of high quality programming is the only way to remain both
competitive and profitable.
THE QUEST BEGINS. Having worked with offshore development teams on
larger commercial projects, I already knew there was a world of skilled
programmers outside the U.S. The only question was how to find
individual programmers for much smaller projects, and how to manage the
risks without the weight or backing of a large corporation.
After searching bulletin boards and community sites, I was confident I
could find qualified programmers interested in small projects, so I
picked out a project to use as a test run. Have you ever thought, "Gee,
if I only had an application that did X, Y, or Z, my life would be so
much easier?" I have a dozen of those thoughts every day. Invariably,
the idea isn't big enough to represent a respectable market, and it
would cost too much to develop as a custom application, so it never
gets built. One application I've wanted to create for a long time is a
market-research survey generator -- a tool that I could use to create
online surveys customized for my client's Web sites. It was a perfect
candidate.
I wrote up a brief functional specification and developed a series of
HTML mock ups showing what I wanted the application to do, and put the
project out to bid. One site where I posted my project, called
Rent-A-Coder, produced about 20 bids from $95 to $4000 for the entire
project. The bidders hailed from all over the globe, representing
countries in Europe, Asia, and South America.
WINNOWING THE FIELD. The hardest part of the process has been
narrowing the field and selecting a programmer. The first step was to
eliminate those who made blustery bids, but didn't bother to mention
any details of the functional spec or ask any questions. Experienced
programmers tend to ask a lot of questions at the start of a project.
Even after eliminating the big talkers, I still had a handful of
programmers who seemed both capable and interested. So, without the
benefit of a face-to-face meeting or even a phone interview, I needed
to learn how to make a decision based on data alone. First, I wasted a
lot of time sifting though resumes and cost estimates. Then,
inspiration struck and I decided to focus on their bid messages -- and
that's where I found a standout.
Other than her immaculate English, Veronica from Argentina seemed to be
a strategic thinker. A lot of programmers -- even brilliant ones -- are
detail-oriented to a fault. They can easily get sucked into
problem-solving routines and lose track of overall progress. While all
of the candidates asked questions about the specifications I had
defined, Veronica asked about some larger issues that I had overlooked.
Even better, she also discussed her strategy for developing the
project. It suggested that the she not only had the experience of
working on larger projects, but the intelligence to have learned the
important lessons from those experiences.
I accepted Veronica's bid and she's been working on the project for a
week. Our communication is conducted purely by e-mail, and the project
has been going well. She's already completed the "admin" area of the
application, and is starting work on the "presentation" area. I expect
the project to be done in another two weeks or three weeks. The total
cost of the project will be less than $500, not including the time I
spent developing the specifications. If my test project works out well,
I'll move more projects into the pipeline.
THE HUMAN ELEMENT. While the business aspects of this venture are
exciting, the social and economic issues are just as compelling. I was
pleased to discover that the process of managing a small, offshore
project follows the same pattern as larger development initiatives,
which made it easy to get the project rolling. But I also realized that
after working with Veronica for a week, I knew absolutely nothing about
her as a person. I didn't know where she lived, what she looked like,
what her voice sounded like, or her interests beyond work. In fact, it
was only this column that provided the impetus to fill in a few blanks.
Veronica lives in Buenos Aires, Argentina. She is married to another
programmer and has a two-year old little boy. The economy is in really
bad shape in Argentina, so Veronica started providing programming
services online as a way to make extra cash. Just like many Americans,
she works in a home office, often waiting until her little boy is
asleep to start programming. Other than work and spending time with her
family, she likes to read books in English, enjoys writing, and loves
to cook.
These are just sketchy details, of course. But they're a sign of what
we risk losing when we have the technology to move our business
anywhere in the world -- and do so without meeting the people with whom
we are doing business. I'm an ardent advocate for these advances, which
will benefit both my business and Veronica's. But I find myself
wondering how we'll replace the human connections we take so much for
granted -- until they're streamlined.
Christopher Kenton is president of the marketing agency Cymbic and a
director of Touchpoint Metrics. He can be reached at ckenton@cymbic.com
http://www.businessweek.com/smallbiz/content/apr2003/sb20030425_0930.htm
APRIL 25, 2003
KENTON'S CORNER
By Christopher Kenton
Grasping, Greedy, Unpatriotic? Not Me
Readers branded me all those things and worse for hiring an offshore
programmer. So here's an explanation, one straight from the heart
My last column apparently touched a nerve. After detailing my
exploration of offshore technical labor, I received a lot of angry mail
from critics accusing me of exporting American jobs and ruining the
economy. The worst labeled me unpatriotic, while the best took me to
task for trivializing the plight of America's unemployed by worrying
about the identity of my foreign contractor. A number of people wished
various disasters on me and on my business (see BW Online, 4/11/03,
"The Woman Behind the Code").
After speaking to a number of my critics, I found out why they were
angry. Most were laid-off U.S. technology workers unable to find new
jobs in the current economic environment. They lumped me together with
the huge companies lopping off departments to make quarterly budget
targets by cutting costs -- and they didn't pull any punches. A number
of interesting discussions came up that cut to the heart of the issues
facing our economy, and I think it's worthwhile to air some of those
debates here.
ON THE BRINK. Most of the angry letters accused me of displacing
American workers. They're right. In the case of the project I
outsourced to Argentina, the American worker I displaced is named Nik.
He's worked for my company for more than four years and has been a
phenomenal employee and a good friend. We were forced to lay him off
when my company was decimated by the economy -- but not before I, and
my my partners, went a year without pay so we could continue to cover
his salary, medical benefits, and those of his co-workers.
As a skilled programmer, Nik was making $80,000 a year -- but it cost
my company $120,000 a year to pay his salary, benefits, taxes, and to
keep him sitting at a desk with the equipment to do his job. That means
he had to do $120,000 worth of billable work just to stay in his chair.
With the flagging economy, his contribution to overhead -- down to
about $50,000 at the end -- went underwater almost two years ago.
That means our loss on just one employee was approaching $70,000 a
year, and that was money out of our profits, our operating revenue,
and, eventually, even out of the equity in our homes. However noble our
notion of giving up our own salaries to sustain our employees might
have been, it was a bad business decision. All it achieved was to
postpone the inevitable layoffs and ignore the necessary adjustments
while draining the resources we had to continue operating. In the end,
we came to the brink of bankruptcy before making the radical changes
needed to bring our company around.
THE TURNING POINT. For me, reality hit home one day last October, when
I was perched on the bed of a pickup truck unloading 15 years of our
company's history at the local recycling depot. As part of our
reorganization, we had to give up our beautiful high-rent offices to
pare down expenses. I can't describe the feeling, but it would be
something like taking the entire contents of your house to the dump.
For me, it signaled for me a major shift, both in attitude and approach
to business.
I'd spent the previous two years watching my business go down the
economy, watching my assets disappear, and watching my future crumble.
But I was tired of lying awake and staring at the ceiling. I was tired
of agonizing over what would happen to me. I was tired of railing
against the big companies that found ways to do well in an environment
that was crushing me and my employees. As far as I was concerned, I
needed to adapt to the new economic environment, to understand what it
would take to survive and rebuild my business.
What I found most interesting in the letters from readers was the
implied argument that, somehow, U.S. technology jobs should be
protected. Anything else would ensure the destruction of our technical
markets, writers insisted, if not our economy at large. The most
compelling argument in this camp came from an unemployed engineer who
pointed out that he could no longer afford to buy a new car, dine out,
or go on vacation. He even itemized the products and services he would
no longer buy to illustrate the recent layoffs' rippling effect on the
economy. When you multiply that by the millions of people currently out
of work, it is indeed troubling.
WAY OF THE MARKET. In the long run, however, even the best plans for
protecting U.S. jobs strike me a recipe for disaster. If I don't have
to worry about my job, I don't need to be the best I can be. I don't
need to waste time learning new skills. I don't need to work harder to
make my company succeed. In short, I don't need to compete. Not only is
this the antithesis of American capitalism, but how long would it take
for the quality of U.S. products and services to fall behind other
nations that are compelled to try harder in order to survive? India,
China, and many other advancing Asian nations are able to compete for
our technology jobs because of the enormous strides they are making in
technical capabilities -- and they aren't likely to slow down.
The bottom line, literally, is that free markets rapidly migrate to
cheaper sources of raw materials and labor. Anyone who shops for lower
prices puts this principle in motion. To try and hold back the tide is
to ignore a law of economic physics.
Does that mean I'm a cynical advocate of globalism, as some readers
claimed? No. I simply believe we're at a point of major disruption in
our economic system -- one that is painful for a lot of people,
including myself -- as skills and technologies become more universally
available. But as a student of Systems Theory I see chaos as a natural
part of the cycle in any system. Every revolutionary step in the
evolution of a system is accompanied by disorganization. That means
that immediately following the pain, there is opportunity for those who
are willing to find it.
CREATIVE DESTRUCTION. That means continuing to lament my fate at the
hands of a ruthless economy, or trying to figure out how to reorganize
my business and prepare for the next wave. Exploring the potential for
cheaper offshore labor certainly does threaten the jobs of my technical
employees. But if I'm successful, it will open up opportunities for new
employees to manage the fresh load of projects I will be able to bring
in with cheaper prices. If I had to put a stake in the ground and
predict a trend, it would be precisely this: Technology production jobs
will move overseas while technology research, design, and management
jobs will grow at home.
In my next column I plan to address the related question: How did we
get here? While many blame the displacement of American jobs for our
economic woes, I have a different point of view based on my experience
in Silicon Valley. In the meantime, I'm interested in hearing your
perspectives. I learned last week that many of the most angry letters
conceal the most compelling stories, and I'll continue to try and bring
those perspectives to the table.
Christopher Kenton is president of the marketing agency Cymbic and a
director of Touchpoint Metrics. He can be reached at ckenton@cymbic.com
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