Outsourcing of IT Jobs Isn’t a Panacea, Panelists Warn Execs at Executives’ Edge Event

DURHAM, N.C. – Are you considering outsourcing your company’s information technology jobs? If so, “do your homework,” says Marco Fregenal, an entrepreneur and a veteran of operating international companies.

Speaking at WRAL Local Tech Wire’s “Executives’ Edge” forum on Thursday, Fregenal said many companies have learned the hard way that outsourcing is not the financial panacea it long has been touted to be.

“Not all of us get excited about savings,” he told the audience during a panel discussion that was led by UNC Kenan-Flagler Business School Professor Jay Swaminathan and Jamie Duke, chief operating officer at SciQuest.

Those savings – primarily in hiring foreign IT workers at lower salaries than those paid to workers with the same skill sets in the U.S. – can be “eaten up” by “hidden costs,” Fregenal explained. He launched Carpio Solutions, a provider of financial software and services, in Cary six months ago. The company does have software manufacturing operations in Latin America, he said, but project development and high-level programming are being done at the Cary headquarters.

Having worked for several years as chief operating officer at Ultimus, another international software firm, Fregenal drew on several years of experience to outline what hidden costs include:

• Time zone differences

• Cultural differences

• Language

• Communication skills beyond simple translation

• Productivity

• Perceptions about jobs and the culture of companies

“Dual shoring” of jobs, which includes more U.S. companies such as SciQuest returning IT jobs to America, was the subject of the LTW event. And Fregenal noted that anyone who only considers salaries in off-shoring is being shortsighted. For example, U.S.-based executives must spend money to travel to foreign offices if they are to build effective teams. “They have to feel that they are part of the company,” he said of the off-shore operations.

Duke added other factors to “hidden costs”: quality assurance, productivity and waste. For example, he said SciQuest chose to return IT development jobs from India to the Triangle due in part to cutting errors in its e-procurement software.

“We had to deal with waste, such as the many errors that were not being caught ‘off script’ by quality assurance staff in India,” Duke said. Limiting reviews “just on a check list” was not good enough, he explained. Rather, workers needed to think beyond the black-and-white to anticipate and catch errors or code that could mean trouble later on.

Swaminathan reiterated many of the points he made earlier in the week in an extensive interview with LTW about dual shoring. He is an expert in the field, and he knows first hand many of the problems the IT environment presents in India since he is a native of that country.

Customer satisfaction, communication, project management and project team stability are just a few of the challenges to be overcome by firms seeking to outsource jobs to India, he pointed out.

Another is the intense recruiting battle for skilled IT workers in India. IBM is the biggest provider of IT services in the country, but it and other firms want to hire 150,000 more people. There simply aren’t that many available, he said, and the result is firms are constantly raiding each other for talent.

“Employee turnover is between 20-30 percent,” Swaminathan said.

Some Indian firms, meanwhile, are choosing to open operations in the U.S., he added, which could mean good news for the American workforce.

Another cost factor is the falling value of the U.S. dollar. Foreign workers cost much more before. Add in wage inflation by intense demand across India and the differences in salaries simply aren’t as big as before, the panelists added.

For those firms that will dual source or outsource, Duke advised that executives look for employees here and abroad who can embrace change.

“The people who do best,” he said, “are those who get excited about learning other cultures.”