Tech Pulse Chicago

Technology Outsourcing Issues
May 10, 2004

Vivek R. Gupta, Senior Consultant, System Services Corporation

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We thank everyone for participating in the Tech Pulse Chicago survey exploring the technology outsourcing issues. We also thank Ron May of The May Report for encouraging his readers to participate in this survey. The survey was conducted from April 14 through May 2, 2004.

1. The Tech Pulse Technology Outlook Index shows a strong 55.06 reading. The capital spending component shows a very strong reading of 59.66 while the employment component is weak at 49.83. Your can learn more about the Index and general methodology of this survey.

Tech Pulse Technology Outlook Index	55.06
Technology Employment Index	49.83
Technology Capital Spending Index	59.66
Technology Innovation Index	55.69

Most questions in this survey allowed participants to select multiple responses. Consequently, the sum of percentages for various items on each question is greater than 100.

2. Our question regarding the primary drivers for the trend in technology outsourcing showed cost savings (62%) and competitive pressures (45%) as the primary drivers. Access to skilled employees (21%) and globalization of operations (16%) were identified as relevant drivers for the outsourcing trend. A surprisingly small number of participants blamed the short-term perspective (12%) of managers as driver for outsourcing. Access to foreign markets (7%) was not identified as a major factor. Some participants characterized technology outsourcing as short-term trend much like dot-com boom while others projected a trend similar to shift of manufacturing to other countries.

3. The question regarding risks of technology outsourcing brought out strong and insightful comments from the participants. A very large number of participants selected transferred costs and false savings (60%) as a risk of technology outsourcing. Loss of (business) knowledge (43%) and loss of intellectual property (41 %) were selected as great risks of technology outsourcing. Customer dissatisfaction or loss (36%) was selected as a moderate risk. Employee morale (34%) and the likelihood of project failure (26%) were identified as modest risks. A small number of participants saw customer backlash and boycott (9%) as a risk of technology outsourcing. A large number of participants noted the significantly greater effort required for specification and coordination of outsourced software development work. A large number of participants commented on various risks to the intellectual property including weak local laws and lax enforcement of those laws.

4. Our question on the functions that are suitable for outsourcing brought out qualified support for many functions. Software Coding (53%), hosting (48%) and call center (47%) were considered to be most suitable for outsourcing. System maintenance (26%), back office processes (22%) and infrastructure management (21%) were considered less suitable. IT consulting (12%) and system integration (5%) drew very little support for outsourcing. Seventeen percent of the participants did not consider any functions to be suitable for outsourcing.

5. On the question regarding actions that the government can take in response to the trend in outsourcing, forty seven percent of participants thought that the government should take no action. Forcing companies to disclose outsourcing (43%) and creating tax incentives that discourage outsourcing (34%) were selected by a moderate number of participants. Twenty four percent of the participants believed that government should limit the ability of government contractors to outsource. Only seven percent of the participants were in favor of other government restrictions. Even though a large percentage of participants were concerned about outsourcing, they were skeptical of government’s ability to positively impact the trend.

6. The majority of the participants for this survey included IT consultants (31%), senior management (21%), and Corporate IT executives (12%). The remaining participants were marketing or sales (10%), government or NGO (9%), back office operations (5%), finance (3%), and human resources (2%). The seven percent of the participants that select ‘Other’ as their current role included some unemployed former technology professionals.

7. For our question on the impact on total employment at participant’s organization, forty three percent expected no change whereas 41 percent expected the total employment to decrease. Only nine percent expected an increase in the total employment. For the participants expecting a decrease in total employment, thirty three percent expected the decrease due to positions outsourced and 9 percent due to productivity gains. The participants indicating no change included those who perceived no change (31%) and those who thought that restructuring will leave the employment unchanged (12%).

8. Our question on the level of concern that the participants had concerning the adverse effects on their own employment or business opportunities brought out a very mixed response. Twenty nine percent were not concerned at all whereas 28 percent were concerned to a small extent. Twenty one percent had a fair degree of concern whereas a slightly higher twenty two percent had major concerns.

9. Our last question asked the participants what they would consider in response to the trend in outsourcing. A relatively large number would consider a change in career (31%) and orient their careers towards roles and functions that are not outsourced (29%). Twenty eight percent of the participants did not consider any response to this trend while twenty one percent considered moving out of the Chicago area. Some considered changing industries (19%), seeking additional training or education (14%) and changing job within their industry (10%).

The next Tech Pulse Chicago survey will explore the role of government and non-government organizations in technology initiatives.