A blog for Colorado politicos has a post and discussion today surrounding a story that appears in the Denver Post and local NBC affiliate KUSA regarding the offshore outsourcing of a state project that proposes, ironically, to help disabled workers in Colorado find jobs. While I’ve touched on the impact outsourcing has on employees, I haven’t delved much into the political impact of the trade practice.

In one form or another, outsourcing overseas has hit manufacturing workers for decades. However, manufacturing workers are largely unionized and consequentially a fairly predictable group of voters. White collar professionals represent a large number of unaffiliated voters, so putting a stop to offshoring bubbled up to the presidential campaign level and became a talking point for Sen. John Kerry last year as part of a strategy to reach these voters.

The President’s response was strategic, linking the issue to the economy and his education and workforce training initiatives by saying that America needs more skilled workers so we can perform these jobs ourselves. Very true. America also needs companies willing to “homeshore” contracts by building domestic operations, much like Rural Sourcing in Arkansas is doing. It’s not rocket science, but it does take a strategic commitment to foster a domestic homeshoring industry.

Politically, it seems like neither party has a clear vision for the role of offshoring in our economy that has taken shape in the form of policy. Worker training is key, as are jobs for those workers. Tax cuts for companies that retain employees in the United States would be great, as would standards for government contracts that factor in whether the work will be performed domestically or offshore. If you know of states or agencies that work like this, please let me know.

Will this be an ongoing political issue? Oh yes. Professional service employees will continue to be a gigantic block of swing voters, and even as the economy becomes more robust, offshoring is a parallel trend that will create a job squeeze for both professional firms and workers. While the extent to which politicians and government apparatus can affect the trend is limited, the rhetoric most likely will not be.

It’s intersting that of all the activities offshore outsourcers are eager to take on, News.com reports that one they won’t touch is payroll services, supposedly due to industry giant ADP.

While ADP does offer a host of valuable services, we have actually found Paychex to be more responsive and an all around better fit for small and medium businesses. If you are looking at a way to resolve your HR issues, let me know and we can talk about setting up a solution for you.

The Washington Post this morning writes on efforts by Pakistanis in the United States to build the offshoring industry in their country, but rightly so the author keeps a skeptical outlook. While Pakistanis in the U.S. hope to bring home some of the $12.8 billion that India generated in outsourcing last year, U.S. companies mentioned sizable security and infrastructure risks. One Rockville, MD-based company visited Pakistan recently to tour call-center facilities “escorted by armed guards” and acknowledged that “‘The power grid’s not stable, so once a month, workers might lose a day and a half.’”

According to this article, the purchase decision for U.S. companies comes down to price - $6 per hour to have a programmer test out new code. Yet this model does not seem sustainable. Pakistan clearly needs infrastructure development, but that will be expensive. So if they install this expensive infrastructure, the costs will be passed on to clients, who will then be paying more, and the chief benefit of offshoring is dimisnished. The instability of these growing operations is likely to hurt, not help, American companies over the long run.

Nicholas Carr (formerly editor of the Harvard Business Review) seems to be on board the outsourcing train, albeit from a unique perspective. His view is that IT will become a centralized function provided by utilities, much like cable or electricity. However I find it hard to imagine companies looking at computers and technology investment merely as a cost of doing business like they would the electric bill. Electricity is either on or off - there are no grades of value to the end user. Good, up-to-date technology on the other hand has a far more variable impact on company performance and employee productivity. That is the essential difference from IT and utilities - IT provides both hardware and the network. Utilities typically only provide the network.

Utilities are the means not the end. Electricity does not require hardware, whereas hardware (computers) require electricity. Even as software becomes networked, hardware investment will continue to be a huge investment for companies and they will need people to make those purchase decisions. Here at Flat Creek, obviously we would like to see that function outsourced, but it’s hard to imagine it becoming centralized even as the global economy becomes more competitive. A more relevant analogy than electric utilities might be the phone industry, where utilities provide access to the lines while independent service providers install the phones, PBX systems, etc to access the lines. While the term “computer” is becoming more ubiquitous every day, it’s a far cry from becoming a utility.

Provocateur predicts ‘end of corporate computing’ CNET News.com

This article from News.com is pretty dated, but telling about the impact of offshoring on US workers. According to this study, “93 percent of IT workers are concerned about the impact of offshore outsourcing on their industry.“

Deloitte Consulting LLP released a study on April 19 with some interesting results… most notably that 70% of participants “have had significant negative experiences with oursourcing projects.” Add to that 44% “did not see cost savings materializing as a result of outsourcing.”

My take is this study shows that just as with the Internet, companies rushed in to this new idea of doing business that was supposed to change everything… and it hasn’t. Just as with the Internet, there are core business principles that have been ignored, and just as with the Internet that resulted in some good ideas gone bad.

Should we not outsource? Of course not, but we should do it smarter, looking at the long-term issues and looking more closely at keeping those functions onshore. We think it’s a great idea for companies to focus on their core compentencies to be more competitive and just enjoy work more. At the same time, moving sensitive operations outside the organization requires a lot of planning from a 360-degree perspective. It’s not just an IT decision to move the help desk overseas. That decision affects customer satisfaction and marketing, which affects stockholder confidence, and sales, etc, etc…

The Deloitte study also notes that 25% of the respondents have cutback on their outsourcing strategies because of - get this - cost and complexity. It doesn’t have to be that way, but maybe this is a good reality check for people drinking the offshoring Kool-Aid. The same work can be done stateside and while the first year costs may not be as cheap, the long-term stability and organizational impact should be well worth the effort.

Outsouring Falling from Favor with World’s Largest Organizations

Here’s a story fresh from India about several employees of an outsourcer who scammed Citibank, a client they were supposedly helping. I didn’t understand the money conversion at first, but News.com reports the call center employees made off with about $350,000 using login information from legitimate customers. That information is supposedly secret, but Citibank got a hard lesson in the trouble with offshoring…