Category Archives: Outsourcing

IT $pending: Does it affect your company’s size?

There is an age-old question which should be on the minds of tech folks and tech sales folks alike: What happens when firms spend money on Software Technology? It’s a deceptively simple question, however, when you dig deeper you find it one of the toughest questions to answer.

A little bit of history is in order here: The question was originally posed when an economist (Ronald Coase) questioned the wisdom of treating the Firm as a blackbox. Blackbox as where Input goes in one end, and output comes out the other with economists never paying attention to what happens inside the box. The answer was also part of my graduating Thesis at the University of Strathclyde, Department of Economics.

It’s a very interesting and a very important question especially if you are in the technology business. Let’s say you want to invest in a multi-million dollar Business Process Management System, and you CFO/CEO asks you, is this going to reduce my headcount and cut labor cost? This is a very similar question to what would happen if a Firm were to outsource a specific function. Does the outsourcing result in reduction of headcount, or expansion in business activities? Pretty tricky question! And you need to have the answers handy before you pitch any proposal to the savvy CxO level person. Remember there are people’s livelihoods hanging in the balance including the IT department you deal with on a daily basis.

Let’s zoom back out a bit here: It is well-known that the aim of the firm, and by extension, IT spending in it, have a shared goal in common, lowering the friction and costs which might arise from such friction within the firm. Therefore, if the IT project is successful (Big IF), then naturally, the friction costs should go down meaning the freeing up of resources and the increase of organization surplus and the freedom to carry out business expansionary activities if all the activities are carried within the firm and not utilizing an assembly line of contractors to do the job each has been designated to do.

So what does research tells us: According to a paper entitled: “An Empirical Analysis of the Relationship Between Information Technology and Firm Size” by one of my favorite Technology Economist of MIT, Erik Brynjolfsson, et al (link here), the evidence and answer is highlight dependent on the organization itself.

Let me clarify: If there are a lot of low-level jobs in the firms to be automated away by technology then those jobs are gone forever. You might say that upskilling those folks to perform higher-level jobs is a possibility, however, it is highly unlikely. This is short team. Long-term however, if there are plans in place to expand the business and there is a need for domain-knowledge, those folks who were automated away in the short-term, can be repurposed and gains can be reaped based on the strategy the company has in place.

From an employee stand-point though, skilling up should be a never-ending endeavor to keep one’s skillset up-to-update in an ever shifting market place.  Remember, outsourcing is not all that cracked up to be and there are many ways to circumvent the outsourcing hammer.

In the next segment, I will share how outsourcing has actually fallen flat on its face and what people did to get back in the employment game through the same companies their jobs were outsourced to….

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Does Being an IT Specialist or a Generalist Impact Your Income?

I profess that I am not an HR expert, however, I have mentored and given career advice to many folks around the globe. The most common question I get and contemplate myself is, does career specialization impact your market value.

In Adam Smith’s pin factory, he poetically describes how specialization and division of labor give rise to economies of scale and made mass production a possibility leading to consumerism which is the ideal capitalistic manifestation of the American Dream we are currently trying to export to China and the world!.  The model in a nutshell goes as follows: you have got to buy stuff. Lots of it. Go in debt doing so. Why? So you can promote mass production, consumerism and division of labor, economies of scale thus working for the rest of your life to pay down your debt, and you get the picture.

The question remains though, how deep should our specialized skills be? And how does it affect our income? A colleague of mine beautifully stated once that our skills are similar to the letter T. The horizontal top is your general skills, and the vertical portion is your specialization. When I went for my Masters’ Degree in Economics he told me that my new skills resemble the letter n or the Greek Pi (Π) where I have two in-depth specialization.

So, which letter should your skills resemble and which one is most lucrative these days? If you are the type and specialize in a niche market, say stored procedures on mainframe DB2, then you are in a different league than say a Java developer. The problem: It’s easy to outsource your job. Why? It’s too specialized to a degree that it is easily definable. The same goes for just about the majority of such types with clear-cut division of labor and specialization and a uniform job description.

Now, if you are the Pi (Π) type, where you multi-specialize, then it will be harder but not impossible for you to be indispensable. Remember, we operate in a labor market without borders where you can hire five for the price of one or two.

So, what’s the answer? In my opinion:

  1. In the age of globalization, with
  2. A highly outsourced corporate functions,
  3. Large wage gaps in an global labor pool (for now anyway)
  4. And outsourcing companies buying local outfits to assimilate and “look and feel” more local thus expanding market share while maintain a small local presence

Your best bet is to have either models, the (Π) or the type with an extended horizontal top implying more generalized skills which include great soft skillsdeep local knowledgesocial capital through networking and most importantly working in a hard-to-define jobs with vague requirements and responsibilities where you have to wear many hats (think Startups). Finally, add a Security clearance requirement and you have the proverbial cherry on top!!