Labor Pains
Labor Pains
Date: Sunday, October 12, 2003 4:39 PM
JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
First the Bad News:
What's happening is that we're going through the
commoditization of virtually everything. It started with
hardware. It's moved to software. And now it's moving to
services," says John Sculley, the former Apple Computer Inc.
CEO who now sits on the board of NextSource Inc.,
And even worse News:
A Gartner study in July looked at the U.S. computer services
and software industry and estimated that one out of every ten
jobs could shift to lower-cost emerging markets by the end of
2004.
Gartner's report, "U.S. Offshore Outsourcing: Structural Changes,
Big Impact," forecasts that 500,000 of the current 10 million U.S.
technology jobs could move within the next year. "In our view,
offshore outsourcing is an irreversible trend," said Diane
Morello,
a Gartner research vice president in the IT management sector.
"Even when the economy rebounds, it is unlikely to bring those jobs
back."
And finally, some career advice for techies!
The challenge, said McConnell, is to take the displaced
developers and turn them into business analysts and architects
and vendor relations managers which some may not want to do.
Why aren't universities telling their Computer Science students to
change their course of study to these careers?
http://www.cioinsight.com/article2/0,3959,1309523,00.asp
October 1, 2003
Labor Pains
By Elizabeth Wasserman
In May, after Hewlett-Packard Co. beat out IBM Corp. for the privilege
of taking over the computer operations of Procter & Gamble Co., a deal
worth $3 billion over a ten-year period, the 166-year-old
Cincinnati-based consumer marketing giant tried making a virtue out of
cost-cutting necessity. Announcing that nearly 2,000 technology workers
would be leaving P&G, where many had hoped to make lifelong careers,
all 2,000 of them would be offered jobs at H-P, at comparable and
sometimes greater salaries. Managers touted H-P's ranking among Fortune
magazine's "Best Companies to Work For" and Working Mother magazine's
"Top 100 Best Employers for Working Mothers." As part of the contract,
P&G insisted that H-P agree to multiyear job protection provisions for
the erstwhile P&G employees in the event of downsizing.
Executives at H-P and P&G say finding the right corporate fit for P&G's
IT workers was a major priority in the negotiations, because it was
crucial to keep morale high among staff during and after the
transition. "It's always a difficult choice," says P&G spokesman Damon
Jones. "At the end of the day, we have 2,000 employees who chose to
work for P&G and now we're asking them to make a shift and work for
another company. P&G is a promote-from-within company. They thought of
themselves as having careers here. But when people saw the way we
executed this deal, they knew we were trying to do the best thing."
The workers saw the writing on the wall. They knew that if they didn't
accept the H-P offer, they would be out of work in the worst economy
for technical workers in a generation. Every single one of the U.S.
workers accepted the new reality for IT workers and went the H-P way,
according to a company spokesman. In fact, some IT employees who
weren't scheduled to make the switch actually requested it, according
to other sources. "Employees inside the company were looking at an
environment where other companies were sending jobs overseas and they
were saying, 'This looks like a pretty good choice,' " said Paul Roy,
partner in the outsourcing practice
at Mayer, Brown, Rowe & Maw LLP, an international law firm, who
represented P&G. "If you want to be the manager of the SAP system or
run the telecom system, there are only one or two slots at the top at
P&G. But if you are working for a vendor who provides many of these
services for many different companies, many slots open up."
True as that may be in the short term, the long-term outlook for IT
employment in the U.S. is bleak. A mere five years ago, demand for IT
skills was so strong that many were pulling down six-figure salaries,
stock options and occasionally a sports car as a bonus for signing with
the exceptional Silicon Valley startup. But now, IT workers are being
increasingly compared to the displaced autoworkers of the 1970s. Or
worse. Ben Catanzaro, 59, who worked for Sun Microsystems Inc. for 13
years (and for Intel Corp. before that) was laid off in Oct. 2001 and
has just about given up on information technology. "My dad used to tell
me about the sweatshops of New York when he came here in the 1940s,"
says Catanzaro, the son of Italian immigrants. "High tech today is what
the garment industry was in the 1940s and 1950s. Here is all this cheap
labor from India and Asia and companies are reaping the benefits.
Companies are also outsourcing more and more, leaving American
high-tech workers with nowhere to work. I decided I needed to go do
something else." Catanzaro finally found a job as a design consultant
for a solar energy technology firm, but that ended within a few months
thanks to poor sales.
According to a survey earlier this year by the Information Technology
Association of America, a Washington, D.C., trade group, the total IT
workforce in the U.S. peaked in 2000 at 10.4 million jobs, then shed
more than a half million jobs before bottoming out last year at 9.9
million jobs. While some of those jobs have returned since then, the
more robust rebound everyone is hoping for may never come. The survey
found that managers have cut projections for adding staff this year in
half. The reasons are myriad: the sluggish economy, the dot-com bust, a
lingering hangover from the Y2K tech overdose and a growing sense that
corporations now have alternatives to the highly skilled but highly
priced U.S. IT worker.
Corporate America is beginning to experience a sea change in its
attitude toward information technology. In increasing numbers, routine
programming and business processes are being sent offshore to
lower-paid but highly trained workers in other parts of the world.
Technology platforms are being standardized, with fewer IT workers
needed to plug-and-play any number of more and more sophisticated
systems. The rise of computing as a utility, which like electricity or
water can be paid for on an on-demand basis, will shift more corporate
IT jobs to services companies, which themselves are threatening to send
jobs overseas. H-P itself has facilities in India, China, the
Philippines, Costa Rica and Poland.
On the horizon is a push toward what's being called autonomic
computing, where systems autoconfigure and self-correct, theoretically
freeing up IT workers from routine chores such as system
administration. But some question whether that's just another way for
corporations to further downsize IT staffs. "It's going to take a lot
of people out of running the infrastructure," says John Parkinson,
chief technologist for the Americas at Cap Gemini Ernst & Young. What
is happening today in computing is comparable with what happened with
the telephone system in the early 1900s. "When they first looked at
residential telephony, they said they couldn't hire enough switchboard
operators to make it work," he says. But once the automatic exchange
was invented, most of those operators had to find other work. Parkinson
estimates that the current trends in computing have the potential to
cut IT infrastructure costs as much as 50 percent, including up to
one-third of the IT workforce in developed countries.
It's Autonomic
There is no denying that the nature of the business is changing. The
software engineer who enjoyed the craft work of designing a fix and
then writing the code is becoming an endangered species, replaced by
the more automated process of moving a project through an assembly line
of workers who function like cogs in a machine. In this environment,
we've seen the rise of disciplines such as extreme programming, a type
of software development that involves the entire team working together
on a daily basis in the presence of a business representative, and
every contributor is an integral part of the project. Autonomic
computing, for its part, takes even more people out of the equation
through the development of such technologies as self-healing software
and hardware, root-cause discovery, and correction and IT service
provisioning. According to a new study from Gartner Inc., within the
next ten years we will likely see autonomics applied to general-purpose
grid computing, service billing and service policy managing systems
that enable companies to shift IT resources to meet their changing
business needs at the lowest cost. The only area in which CGE&Y's
Parkinson predicts an increased demand for IT workers is for "IT
plumbers" skilled experts who can come in and fix the automatic
self-fixing systems.
Throughout history, technology has helped drive change change that has
often dislocated workers. In his 1995 book The End of Work, Jeremy
Rifkin went so far as to predict that radical automation of production
and services would lead to an enduring drop in the availability of jobs
as we know them. But history has more aptly shown that the
disintermediation of some by technological advancement often leads to
new opportunities for others. One has only to look at the printing
trade to see the impact. In the 1400s, scribes were displaced by the
invention of the movable-type press, a technological advancement that
went on to open up previously unfathomed opportunities for printers and
typesetters. Those tradesmen were then displaced by cold type and
desktop printing. The creation of mass-production techniques to build
automobiles revolutionized manufacturing processes for other major
industries, and then we found that in emerging markets production could
be done faster, better, cheaper.
In the information industry, technological advancement has radically
changed the way businesses do business. So it is ironic that some of
the architects of these changes are now being displaced by their very
own creations the development of software that needs fewer systems
administrators, for instance, or the ubiquity of common platforms that
can be tended to in India as easily as in Indiana, in San Jose, Costa
Rica, as easily as in San Jose, Calif. "What's happening is that we're
going through the commoditization of virtually everything. It started
with hardware. It's moved to software. And now it's moving to
services," says John Sculley, the former Apple Computer Inc. CEO who
now sits on the board of NextSource Inc., a New York City company that
develops Web-based human capital management software. Among their
products is the People Blue Book. Modeled after the Kelley Blue Book,
which lists average prices for certain models of automobiles, the
People Blue Book shows applicants, agencies and employers current,
hourly, daily and yearly rates for consultant, temporary, project-based
and full-time positions. Another product, The People Ticker, collects
real-time information from a variety of Web sources to provide
employers with market rates for specific jobs in different locations.
"Companies have to find the least-cost way of delivering their products
and services," Sculley notes. "What it means for workers in the U.S. is
that they need to keep refreshing and improving their skills. More and
more, we're moving toward a system of certified IT workers. Certified
in terms of knowing that when you hire somebody, they will be able to
do the job you need them to do."
Meanwhile, the nature of IT work is changing. More common platforms
have lent themselves to more modular work, pieces of which can be done
by different workers often in different parts of the globe. Thaddeus
Arroyo, the CIO of Cingular Wireless, has consolidated his company's
reliance on 1,400 different enterprise applications to 300 smaller,
more efficient operations, and in the process developed a workforce in
which new projects move from skill to skill with a project manager
instead of relying on one master craftsman to tackle the entire task,
from conceptualization through development. Managers can choose various
combinations of full-time employees, contract workers and projects that
can be sent overseas at great cost savings. Larry Smith, CTO of GTECH
Corp., a provider of gaming systems to the lottery industry, says the
company's technology can be viewed as concentric circles, with
strategic development kept in-house, the next layer provided by
partners and vendors, and another layer provided by temporary workers
and consultants. As IT work gets more commoditized, Smith said, "I will
look for the lowest-cost alternative" which he will probably find
offshore.
Over There
The most forceful driver behind the shifts in IT staffing is the
so-called "offshoring" of IT work, whose appeal in corporate boardrooms
and on Wall Street is growing. A Gartner report forecasts that by next
year more than 80 percent of U.S. executive boardrooms will have
discussed offshore outsourcing, and more than 40 percent of these
enterprises will have finished a pilot, or will be outsourcing IT
services either offshore or "near shore" somewhere on the North
American continent. Even companies that choose to outsource IT
functions domestically with one of the growing technology service
powerhouses among them IBM Corp., EDS Corp. and now, with the P&G
contract signed, H-P wind up augmenting the offshoring trend. Many of
these services companies operate subsidiaries overseas to provide
lower-cost alternatives to applications development or maintenance
services, or farm the work out to the growing number of emerging tech
markets around the globe. IBM's plan to accelerate efforts to move up
to 3 million white-collar jobs overseas caused a backlash after a
recorded conference call by the company's top employee relations
executives was leaked to The New York Times in July. According to the
Times, the executives said that the jobs would shift to foreign workers
by 2015 partly because competitors were making similar moves, shifting
an assortment of service-sector jobs from call-center operations to
software design and business processes themselves to India, China, the
Philippines, Russia and an assortment of other countries that want in
on the action.
To find the corporate rationale, look no further than the bottom line.
A recent research report by Deloitte Consulting estimated that the
financial-services industry will send $356 billion in expenses offshore
within the next five years (though that total includes more than just
IT jobs). According to the report, this will translate into an annual
cost savings of $138 billion for the world's top 100 financial-services
companies by 2008 an average of $1.4 billion each. By those
calculations, savings for the top 20 percent could be two to three
times as big. "It's not only some of the big players GE Capital and
American Express Co. and Citibank. Virtually every financial
institution is now engaged in [figuring out] how to reduce fixed costs
by going offshore," said Chris Gentle, a Deloitte director of research
and author of the report.
But what's good for corporate America isn't necessarily good for the
professionals who run the IT operations. In the long run, many IT
workers in the U.S. may have to retrain or leave the field. Global head
count migration will be significant. Deloitte's study estimates that 2
million of the 13 million worldwide financial-service jobs will be
relocated, primarily to India and Southeast Asia. A Gartner study in
July looked at the U.S. computer services and software industry and
estimated that one out of every ten jobs could shift to lower-cost
emerging markets by the end of 2004. Gartner's report, "U.S. Offshore
Outsourcing: Structural Changes, Big Impact," forecasts that 500,000 of
the current 10 million U.S. technology jobs could move within the next
year. "In our view, offshore outsourcing is an irreversible trend,"
said Diane Morello, a Gartner research vice president in the IT
management sector. "Even when the economy rebounds, it is unlikely to
bring those jobs back."
That permanence is finally starting to sink in with Tom Kilborn, 49, a
father of three who lives outside Oakland, Calif. Kilborn lost his job
as a Cobol programmer in December, shortly after Bank of America, his
employer of 16 years, signed a ten-year, $4.5 billion deal with EDS to
outsource management of voice and data networks and move to more
flexible operating platforms. Kilborn wasn't among the 1,000 employees
who were transferred to EDS. "In November, they told us about the
advantages of global development," says Kilborn. "How the bank could
save money by employing people from India, and how the workers in India
could be working on programs while the IT staff in the States were
sleeping. The person from HR said that by 2008 there would be a real
need in this country for people with IT skills. Then, at the end of his
message, he told us there would be more layoffs because of the budget."
Kilborn is now getting certified as a network administrator to better
his chances of finding a job. "Five years ago everybody wanted you, and
now it's hard to find a job," Kilborn laments.
This paradox has implications up and down the food chain, from the
people who benefit from greater choices and lower costs in IT services,
to the people who are displaced, to the people who remain working at
companies going through change. IT workers need to reassess their
skills. "People who have only a technical toolbox are at risk," says
Gartner's Morello. "They can build their value through understanding of
business process through issues associated with enterprise objectives,
knowledge of the business, things that are associated with the industry
or business."
That understanding of how technology can help the business is even more
crucial for CIOs and IT managers. "Previously, you had people who were
70 percent focused on the technology and maybe 30 percent focused on
business," said Kim Perdikou, CIO of Juniper Networks Inc., a
Sunnyvale, Calif., networking firm. "Most people are seeing a shift.
The swing is probably to 70 percent business and 30 percent technology.
And you're seeing a number of CIOs who are not technologists. They are
businesspeople taking on the job of CIO because other executives don't
feel the people they have been talking to in IT have any comprehension
of business."
When American Express entered into a seven-year, $4 billion contract
with IBM in early 2002, the company had to set up a new governance
structure to manage the deal made up of the CIO, senior vice president
for IT, global corporate services president and others. Steve Karl,
AmEx's senior vice president for IT, said his job has changed
dramatically, becoming more about managing relations with vendors and
within AmEx, and ensuring that the contract delivers what the company
needs.
American Express, which is 18 months along in its contract, realized
some immediate cost savings after the economy slowed down at the end of
2001 and the company was able to benefit from the flexibility in its
contract to ramp down. The flip side of that was experienced by some of
the 2,000 AmEx workers who were hired by IBM as a result of the
agreement. Some of those employees AmEx won't say how many were laid
off by IBM during the downturn. But now, Karl says, the company is
poised to test whether the promise of utility computing can work on the
other end as AmEx forecasts an upturn in its business and IT needs. "We
can't assume that because we handle downturn economics," Karl notes,
"that we're structured to ramp up quickly and be able to deploy
technical resources. We're making sure right now that we do careful
planning."
The Long View
The prospect of outsourcing particularly moving jobs or work offshore
at a time when the U.S. economy continues to sputter is controversial,
despite the reputed cost savings. Al McConnell, managing director of
the Information Management Forum, a members-only, peer-driven
knowledge-sharing organization for senior IT executives, says the group
had a meeting on the topic in June at which representatives of 30
companies sometimes were divided.
Among the reasons for the division was the question about how all of
these forces outsourcing, utility computing, autonomic computing are
changing the very nature of IT work. "The fundamental challenge was
asking these workers to transition from a master craftsman to a factory
model," McConnell said. "In a lot of companies developing software is
like a craft. An employee is an analyst part of the time and a
developer and business process expert other parts of the time. All of
this is wrapped up in single individuals. If the development function
is taken away, that changes their value proposition and what their
fundamental job role is. Peeling those functions out may meet with
organizational resistance."
The challenge, said McConnell, is to take the displaced developers and
turn them into business analysts and architects and vendor relations
managers which some may not want to do. Workers get angry when they
believe they will be replaced or forced to make a job change they
didn't choose. If a decision to outsource is handled poorly inside a
company, morale can plummet among the workers who remain, as everyone
from human resources to accounting wonder whether they will be next.
P&G started retraining tech workers, and encouraging them to earn
external IT certifications, more than a year before they entered into
the IT outsourcing agreement with H-P. There were company meetings. A
Web site was set up on the company intranet so that employees could be
kept up to date on the status of negotiations. Managers who have
navigated a successful transition to an outsourcing relationship say
the key to keeping the troops happy at home is to communicate honestly
and respectfully. That can work to keep productivity high and defuse
natural employee anger and concern.
P&G's new post-outsourcing IT schema provides a glimpse of what lies
ahead. Two-thirds of the company's IT workers now work for H-P. P&G's
global business services officer has taken over responsibility for IT
infrastructure, desktop support, systems architecture and the backbone
as well as the relationship with H-P. Worldwide, the company has
standardized on one common platform. In addition to outsourcing to H-P,
P&G now operates three shared-services centers abroad in Newcastle,
U.K.; San Jose, Costa Rica; and Manila, in the Philippines as well as
application development centers in Singapore and Warsaw. About 1,000 IT
workers remain on staff at P&G, mostly in the business units that
manage research and development, sales, advertising and the like.
Meanwhile, CIO Steve David, who spent nearly 30 years at P&G on the
sales side before coming to IT, focuses on "breakthrough ideas,"
developing new technology concepts that will enable the business to be
more competitive.
Like P&G, many U.S. businesses are at the beginning of a decade-long
transition from IT developed on a company-by-company basis to a future
where IT resources are shared and provided on demand as a utility. Most
corporations don't have a separate electricity department; they buy
their services monthly from a supplier and when they need to fix
problems, they call an electrician. Yet there is still a role for the
CIO, and for other IT workers, who will be needed to figure out how
best to apply technology to further business goals. "We will end up
with something for business automation that looks more like the way we
provide electricity or water or other utility services," says
Parkinson. "As that progresses, all the smarts go from running the
infrastructure to what we should do with it."
Support this Newsletter and ZaZona.com by donating:
www.zazona.com/Donations.htm
To Subscribe or Unsubscribe send an email to
Back to archives