Evolutionary Theory (1973), p. 1-30.
A dozen years ago, in 1992, I wrote a book called Declineand Fall of the American Programmer , whichpredicted that U.S.-based computer programmers would suffer the fate of thedodo bird by the end of the decade. I didn't call it "outsourcing,"but I did identify India as the primary source of the long-term competitivethreat to our knowledge-based U.S. economic engine.
1992 now seems like a long, long time ago; and the world thatexisted then now seems like a galaxy far, far away. As it turned out,programmers did not go the way of thedodo bird as the decade came to a close; indeed, young college graduates withdegrees in English literature were negotiating six-figure salaries at dot-comcompanies, and demanding sports cars as a signing bonus. Fortunately, most ITprofessionals had long since forgotten the predictions I had made at thebeginning of the decade; those who did remember lost no opportunity to tell mehow dreadfully and fundamentally wrong I had been.
But now it seems that my prediction may have been simplypremature, not wrong; in response to a straightforward survey questionconducted by the Cutter Consortium, about the extent of outsourcing that hadtaken place between 2000 and 2004, the answers strongly indicated that offshoreoutsourcing has now become a mainstream phenomenon:
Figure 1.1:
Extent of offshore outsourcing in the IT industry, 2000-2004
(Copyright © 2004 by Cutter Consortium. Reprinted bypermission.)
As I begin writing this new book, Outsource? , unemployment in the computer industry has reachednew highs in the U.S., and U.S. employers are shifting tens of thousands ofinformation-technology (IT) jobs to countries like India, China, Russia, andthe Philippines. And while the current phenomenon is obviously driven by thehigh-tech recession of the early 2000's, there is a growing perception that itmay not be just a temporary "blip" that disappears when the economyfinally improves. Indeed, it may well be a permanent trend, and it mightpossibly lead to the "dodo bird" scenario that I warned about. In anycase, any American knowledge worker -- whether in the computer industry, orseveral other industries we'll be discussing in this book -- who hasn't beenhibernating in a cave for the past few years knows that outsourcing is here,and that it's growing. Also, it doesn't take a rocket scientist to predict thatoffshore outsourcing is likely to cause morale problems. When we asked thisquestion, in a spring 2004 survey of approximately a hundred IT professionalsand managers, we got the following response :
Figure 1.2:
Likely impact of offshore outsourcing on morale
(Copyright © 2004 by Cutter Consortium. Reprinted bypermission.)
Of course, the "dodo bird" scenario wassomewhat exaggerated even in 1992, and most pundits would argue that it'sexaggerated now. I don't seriously believe we'll see a U.S. economy with no computer programmers, or software engineers -- atleast, not during my lifetime. Nor will we completely eliminate otherknowledge-based jobs like mortgage brokers, insurance claims adjusters, and taxprocessing specialists. The question is whether the future of the computerindustry and other knowledge-intensive industries will be similar to what we'veseen with the textile industry, the steel industry, the automobile industry,and other manufacturing industries. The U.S. auto industry, for example, hasnot disappeared; but its market share has dropped sharply over the past severaldecades, and this has had life-changing consequences for workers and consumers,as well as the hundreds of thousands of small companies who provide parts andservices to General Motors, Ford, and Chrysler. It's one thing for an industryto lose 10% of its market share and jobs; it's quite another thing to lose 50%or 75%. And as we know, even the Big 3 auto companies are no longer"pure" American companies, building "pure" Americanproducts. Chrysler is owned by a German company, and both Ford and GeneralMotors have partnerships, joint ventures, and a dizzying array ofmanufacturing, assembly, and marketing operations all over the world 2 .In more and more industries, even the staunchest "America first!"company is beginning to realize that it must outsource some or all of itsoperations in order to remain competitive .And if that is true for auto companies, textile companies, and agriculturalcompanies, it's also true for computer companies, and banks, and insurancecompanies. The globalization phenomenon has also had significantconsequences for consumers, too: most would argue that they have more choicestoday than their parents did a generation ago; and both U.S.-made and foreigncars have much better quality than the clunkers we drove in the 60s and early70s. And for all the talk of protectionism, nobody seems to have any qualmsabout buying Japanese or Korean cars, and nobody seems to be boycottingWal-Martt's -- where they can buy low-cost, good-enough clothing and householdgadgets from anywhere in the world, including Mexico, China, Indonesia, andother low-cost countries .Interestingly, it may also have had a positive impact on the quality-conscious"professional" automobile workers and managers in the U.S.: they nolonger have to be embarrassed by shoddy workmanship in the companies theyrepresent. Wrenching as it may be to those immediately affected, perhaps thereis a "silver lining" to having the gene pool of workers reduced, sothat we're left with the highest-quality, most productive workers in keyindustries.
In the past, this offshore-outsourcing phenomenon involvedagriculture and assembly-line manufacturing; but the key trend in the 21stcentury is offshore outsourcing of "knowledge work." Softwaredevelopment was one of the first high-value-added examples of such outsourcing;keypunching and data-entry activities were among the labor-intensive,low-value-added examples, as far back as the 1960s and 1970s.
And while software development continues to be a significantexample of offshore outsourcing, it is by no means the only one. Because I hadspent my entire career in the IT industry, that's what I focused on in Declineand Fall of the American Programmer ; but mywork during the past decade (including service on the Board of Directors of aU.S.-based outsourcing firm, and also on the Board of its Indian subsidiary)has given me insights into the offshore outsourcing phenomenon in such areas asmortgage-application processing, insurance-claim processing, call centers andhelp-desk operations, legal services (e.g., filing of patent applications),clinical research operations in the pharmaceutical industry, and many others.
Bottom line: knowledge work of all kinds is more and more likelyto be a global commodity, and companies striving to compete in a global economywill continue looking for opportunities to use the lowest-cost, highest-qualityproviders of products and services wherever they may be located . Thus, Outsource? does notfocus on just the computer-industry phenomenon, though it continues to be oneof the more prominent examples because of recent coverage by BusinessWeek , the Wall Street Journal , and numerous other mainstream publications. Butwhile programmers tended to ignore the warnings I offered in the early 1990s, Iwant to ensure that lawyers and doctors and insurance professionals andwhite-collar workers of all kinds recognize the competitive issues we face inthe first few decades of the 21st century. I also want to take a fresh look at the IT industry, for theactivities in the next few years are likely to go far beyond what I saw adecade ago. I'll also summarize the outsourcing activities in a number of otherkey industries, and I'll offer some predictions about likely trends over thenext decade. Of course, I can't guarantee that those predictions will becompletely accurate; but I've grown more humble in the past decade, and I'llavoid saying anything more about dodo birds.
Because of the steady stream of e-mail messages that I receivefrom unemployed programmers who seem to think my 1992 book provided me withsome silver-bullet solutions to their problems, and because of my experiencewith both vendors and purchasers of offshore products and services, I haveincluded several chapters that discuss the implications of this growing trendfor individuals, companies, and for government/society at large.
This is important because, as we are rapidly becoming aware, theoutsourcing phenomenon is now much broader than just software development --and while there may be some universally-applicable strategies to achieve acompetitive advantage across all industries, the details obviously differwidely from one industry to another. Also, there seems to be much more of asense of inevitability about offshore outsourcing than there was in the early1990s. In those days, the common reaction, especially from American computerprogrammers, was, "We don't think this is a real problem, but if there is a competitive threat, tell us what we have to do toprevent it from becoming serious." Today, the common reaction is, "I'm seeing it happen allaround me, and I think my own job may be outsourced next month. Tell me what Ishould do to cope with this phenomenon." And as it turns out, there are anumber of strategies and initiatives that individual programmers -- andindividual accountants, lawyers, help-desk personnel, and other knowledgeworkers whose jobs are being outsourced -- can do. Some of the strategies arestraightforward and obvious; but some require some difficult choices anddecisions. Similarly, there are strategies and choices for knowledge-intensivebusinesses whose products and services are under competitive attack by lower-cost,higher-quality companies in other parts of the world.
Finally, there is the possibility of governmental action. Much ofthe discussion today, especially in the IT industry, revolves around thegovernment-mandated limits for so-called H-1B visas, which allow foreignworkers to carry out their work (which may or may not result in displacement ofhigher-cost American programmers) here in the U.S. -- i.e.,"on-shore" rather than "off-shore". But I think it isnaïve to suggest that the offshore outsourcing problem can be eliminatedby simply eliminating such visas; in the extreme case, it will simplyaccelerate the existing trend towards offshore outsourcing -- i.e., where thesoftware development work is shipped (via satellite links and the Internet) toIndia or China, and the results are shipped back to the customer in NorthAmerica.
But there are other options and strategies that I believegovernment could employ, at the local,state, and Federal level; greater investment in education, combined with reformof the public-school educational system, is one such option -- along withinvestments to promote "lifelong education," especially among adultswho discover that the university training they received years ago is nowobsolete .I am skeptical that any significant, effective, proactive policy will emergefrom the Federal government anytime soon; but a number of initiatives at thelocal level, and in various states around the country, give me some hope thatpositive things can be done toinvest wisely, and channel society's energies in a direction that will makelocal workers and companies more competitive.
Ultimately, though, this is not a book about political solutionsor recommended government policy. And while I do think there are rationalstrategies that corporate executives can follow to make their companies morecompetitive, the real focus of this book is on the individual.
After all, it has been individual computer programmers who have emailed me continually, ever since thepublication of Decline and Fall of the American Programmer. It's individual knowledge workers, far more oftenthan corporate executives, who run the risk of losing their jobs as a result ofthis global shift of products and services. And it's individuals, as severalcorrespondents have reminded me in recent months, who have to advise theirchildren what careers and professions they should follow -- and the outcome of those choices will ultimately havea far more profound effect than a politician's modification of a visa quota. One of the individuals who is faced with these issues is me: likeeveryone else reading this book, I too have to compete with hard-working,low-cost, high-quality knowledge workers all over the world. So, rest assuredthat everything you read in the chapters to follow is not a hodge-podge ofideas formulated in an ivory tower; I have to follow my own advice, or I toowill end up like the dodo bird.