The ragged edge of outsourcing

As I approached my neighborhood sushi restaurant, the friend I was meeting for dinner called. He wouldn’t be able to make it; he had to take part in yet another conference call with India. But he promised to make it up to me somehow if I could please, please, pick up dinner and bring it to his place.

He was hungry and wired when I arrived at his door. “American firms just don’t understand what outsourcing does to a company,” he ranted as he tore open the package and began mixing wasabi into his soy sauce. His day had started with a conference call with India at 8 a.m. and had finally ended at 9:20 p.m. with the follow-up conference call that had scrambled our dinner plans. “It’s not that the work is better or worse; it’s the time that it takes to communicate with a team of individuals half a world away.”

For various reasons, his company has faced extreme financial difficulties during the past few years. Employees in all areas, including IT, have been let go as the company has struggled to match costs with its shrunken revenue. Under pressure from the CFO, and desiring to retain some development, a new CIO recommended outsourcing overseas.

Of the remaining IT managers, a small group was selected to manage the outsourcing project. A respected international consulting group was chosen to assist. Because only those who had the strongest track records and the most positive attitudes were selected, my friend felt honoured to be on the team.

Nine months later . . .

“Business owners still aren’t happy with the fact that application design meetings need to be held at 7 a.m,” he said, jabbing his chopsticks into the pickled ginger. “Projects are taking three and four times longer because overseas workers don’t understand our business the same way my old employees did. It’s not that one group of developers is smarter than the other; it’s that my old group had more experience on the existing applications than the new one does. In a couple more years, it will probably be OK, but for now, it’s a disaster.”

I spent my undergraduate years studying economics along with computer science and mathematics, and I understand the benefits that globalization brings me. I like my set of US$1 made-in-China porcelain bowls, and I love commuting in my Volkswagen Jetta, which was made in Mexico from parts manufactured around the world. And while it’s probable that one of the sushi chefs who prepared our dinners is in the U.S. on a temporary visa, it’s certain that about a fifth of my staff was born outside the U.S.

Yet, as an economist, I couldn’t help but think about the real value of the decision implemented by my friend’s CIO. On one level, it appears to be a very good choice. Development is still going on, and the CFO can confirm that less cash is being spent than before. However, the business owners are very unhappy. With productivity three to four times lower, the total value added by IT is a fraction of what it used to be, and the average value of IT goods and services produced per average dollar spent is lower than before. I wonder which, in the long term, will be replaced first: the CIO or the outsourcing solution.

Virginia Robbins is CIO and managing director at Chela Education Financing in San Francisco. Contact her at