Pittsburgh, Pa. -- Outsourcing. You've heard the term on the news. You may have even lost a job because of it. In any case, the practice of outsourcing job functions has become a fixture in the American job landscape.
According to Dr. John Davis, program chair of Argosy University/Dallas' School of Business and Information Technology, two statements can be made concerning outsourcing: outsourcing is expanding, and outsourcing is here to stay. These days, companies must find ways to streamline operations and create greater efficiencies if they are to compete in the expanding global marketplace. Therefore, outsourcing operational functions that are not part of a company's core competency is an alternative that cannot be ignored.
"The outsourcing of part or all of the human resources (HR) and information technology (IT) has become increasingly popular with firms during the past five years,” says Dr. Davis. “Both IT and HR require continuous investment of capital each year to meet the departmental equipment and staff demands. As companies look to reduce these escalating department costs they find that internally they lack the expertise necessary to manage these functions more efficiently and effectively."
In 2004, Microsoft announced it will hire as many as 7,000 employees worldwide in its current business year as it continues to expand and to fill vacant positions. Yet Microsoft is building facilities in India and has been hiring there as it seeks to lower technical support and development costs. Outsourcing to India has become a hot topic this year as many high-tech companies turn to the country's growing pool of English-speaking software engineers as a cheaper source of labor.
By outsourcing, companies often discover that comparable or improved service is possible for less annualized cash outlay. Outsourcing firms accomplish this by leveraging the cost of services, like insurance, hardware, and software across many clients then passing back the savings through price considerations. In addition, these firms can leverage all hardware and software upgrades, thus assuring state-of-the-art applications for the same fixed fee.
"It becomes more difficult each year for company executives to justify large increases in department budgets without a comparable return on that investment," says Dr. Davis. "Many executives have found that by outsourcing these and other functions (manufacturing, software development, plant maintenance, for example), monies can be better spent on improving their critical core competencies."
According to Forrester Research Inc., an independent technology research company, rough estimates suggest that the United States has lost 400,000 to 500,000 information-technology-processing jobs to outsourcing over the last few years. This is a small number in an economy that employs around 130 million workers, but outsourcing is moving quickly up the wage-skill chain from call-center employees to software engineers, medical specialists, lawyers, and financial analysts.
But how does outsourcing affect individual employees and those who are trying to find a new job? Dr. Andrew Ghillyer, dean of Argosy University/Tampa's School of Business and Information Technology, believes that outsourcing is an easy sell on the basis of numbers alone.
"Any organizational function that is potentially 'outsourceable' is now subject to instability, low morale, and high turnover as employees come to terms with the constant threat of their job disappearing at a moment's notice," says Dr. Ghillyer. "Such a work environment is not conducive to employee loyalty or creativity. Outsourcing makes the financial analysts happy, but it also sends a very clear message as to the expendability of your workforce and employees are likely to respond with the same lack of commitment to your organization if a better opportunity comes along."
Corporations are not the only groups considering or rejecting outsourcing as a viable tool for growth. A 2004 report from the National Conference of State Legislatures indicated that earlier this year, six states -- Arizona, California, Colorado, New Jersey, South Carolina and Washington – were considering outsourcing bills to bar or restrain physicians and health care entities from outsourcing work that would involve sending and handling of confidential medical information internationally.
With 2004 being an election year, U.S. job and economic growth will undoubtedly be a hot topic in the news and in campaign speeches, with outsourcing being an area of great debate. Observers may disagree about outsourcing's role in the current cyclical recovery, but outsourcing will clearly be a powerful source of structural change in labor market dynamics over the next decade.