Why IT Jobs Are Never Coming Back
CIO.com: But what about management overhead and other hidden costs that can erode those labor savings-have those diminished?
Jannsen: It's gotten a lot easier to manage in terms of basic fundamentals. There are two parts to that-problems on the U.S. side [of the offshore engagement] and problems on the Indian side. They are both more mature. But if someone tells you they're having problems with their team in India, it usually means the problems actually exist on the U.S. side. The ability to work on a global basis is more challenging for U.S. [IT organizations]. I have a lot of my research written in India today. They used to only provide charts or data.
Padron: It's becoming a moot point, because you are going to have to manage a global workforce anyway.
CIO.com: You write that captive offshore centers are the dominant model for the globalization of IT support. In recent years, a number of large companies sold their offshore IT centers. Is that trend reversing?
Jannsen: A few years ago, a number of offshore players and some domestic providers were looking to expand their global footprint and the easiest way to do that was to buy someone's [captive] operations. Proctor & Gamble's [sale of its captive centers] was a big one. But there's not a lot of selling going on right now because there aren't a lot of new entrants that need footprints.
Padron: Global shared services centers have accelerated beyond IT to other functional areas. According to our research, 65 percent of companies are leveraging the P&G model and putting it all together-IT, finance, HR, procurement-as a global business services center. Captives are still growing and companies that know how to do business offshore prefer it because they get to keep all the labor arbitrage benefits.
CIO.com: Who oversees these global service centers-the CIO?
Padron: Some are under the CFO because they started in finance, but they're migrating away from that. Sometimes, the CIO is in charge, particularly in companies with a business-oriented CIO like Merck or P&G or Dow.
CIO.com: Offshoring isn't the only culprit in the loss of U.S. IT jobs; automation has also played a role. Which is having a bigger effect on employment prospect s for American IT professionals today?
Padron: Automation is still the preferred labor arbitrage strategy. Many companies have implemented great, new infrastructure and are saying how do we go to one instance of ERP, for example? How do we automate the next stage of work?
Jannsen: Automation has been the primary driver (of U.S. IT job loss). Looking forward, offshoring will have the biggest impact.
CIO.com: At what stage is U.S. corporate IT in coming to terms with the new global-and asymmetrical-war for talent you describe.
Padron: The first thing that went offshore was the help desk and the data center. The next thing was programming. That's lagged a bit because companies still have a lot of legacy code-spaghetti code, some non-standard thing unique to that company-and it doesn't make sense to send that somewhere else. But as the next wave of standardization happens in the next few years, those unique requirements are going to go away.
Jannsen: One other constraint is the scale issue. Companies that are $5 to $10 billion [in revenue] are ahead of other companies. Globalization is just part of doing business. But if you're a midsize company in the Midwest. it takes a lot longer. They need to go that extra mile to compete globally. The only other option is automation.
Padron: A lot of what's inhibiting companies that should be doing this is cultural. There's a lack of management team understanding of how to do business in a global setting. They're just doing things the way they've always done it.
CIO.com: What IT roles will remain stateside for now?
Padron: You have to separate the back office side from the customer facing capabilities. You'll see folks who can better integrate supply chains and do design and architecture. Customer and relationship management, those higher level strategic jobs will be retained.
We're not saying innovation in IT in the U.S. is dead by any stretch. A lot of innovation will continue to come from the U.S., but the masses of jobs will be elsewhere. We'll still see U.S. innovation in cloud computing create wonderful capabilities, but if it requires masses of programmers, they will be elsewhere.
Jannsen: Innovation will continue. It's an important part of who we are in the U.S. That combination of capital flow and entrepreneurialism is unique to America.
CIO.com: But aren't countries like India maturing in terms of IT innovation capabilities as well?
Jannsen: That's the scary part. They will get there. It's one thing to get cost savings from less strategic parts [of the corporate IT portfolio]. But at some point, Infosys is going to be just as innovative as IBM.
Padron: And some of the IBM innovation is not done in the U.S. anymore. The economic world is ahead of the geopolitical world.
CIO.com: Is corporate IT-and U.S. IT job loss-a bellwether for other corporate service functions like finance or HR?
Jannsen: Finance is catching up in a big, big way. IT was leading the pack. In three to five years, there will be just as many finance jobs lost as IT jobs. HR will take a little longer because it is a business-to-consumer function while finance and IT are business-to-business.
Read more about outsourcing in CIO's Outsourcing Drilldown.