3 Reasons Why More Outsourcing Is Inevitable

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Time for an outsourcing reality check. Since everyone’s excited about how well – or poorly – outsourcing works, let’s take a look at what’s happening now, and what’s likely to happen over the next few years.

Let me say first that much of the fate around outsourcing has already been sealed. How could this be? I realize that there are new reports that near- and off-shore outsourcing does not save as much money as many people assumed. Some reports suggest that quality is a continuing problem, and others complain about language barriers, competing processes and the management challenges that especially plague many off-shore outsourcing projects.

The fate may already be sealed for several reasons. First, the number of management information systems (MIS), information systems (IS), computer science (CS) and computer engineering (CE) majors has fallen so dramatically over the past few years that we’re likely to lose an entire generation of replacement technologists if present trends continue – and they show every sign of doing so. So as the previous generation continues to gray, there will be precious few new ones to keep the skills pipeline full. The obvious outcome is increased demand for the skills – wherever they happen to be.

A second trend that will fuel the demand for more outsourcing is standardization and its cousin, commoditization. The industry is making increasingly less variant stuff work together. While Web Services and service-oriented architectures (SOAs) represent impressive technology they also represent freedom to those who deploy and support technology.

Vendor consolidation is also fueling standardization and commoditization, and if you believe the impact that SOAs will have on software development, support and licensing, the stage is set for the massive de-centralization of cooperative software components. If this playing field truly levels itself out, the door will open even further for outsourcers who will master the new architectures (as a natural extension from where they are now in applications development and integration).

The third trend to watch is “the end of corporate computing,” or the desire to buy services and rent applications rather than deploy and support them in-house. Nick Carr is at it again. In the Spring 2005 issue of the Sloan Management Review, he predicts the end of corporate data centers and the rise of “utility computing.”

Long-term, I think he is absolutely right. Initially, companies will purchase transaction processing services from centralized data centers managed by large technology providers, but over time companies will rent applications developed the old-fashioned way by the same old mega software vendors.

By the Drink

But eventually, as SOA proliferates, new software delivery and support models will develop from the old vendors as well as a host of new ones: “hosting” applications will yield to “assembling” applications. The appeal of “paying by the drink” is just too great to resist – especially since the alternative will still (and forever) require the care and feeding of increasingly difficult-to-find technology professionals.

If you look at these trends there’s plenty of reason to believe that down-the-street, near-shore and off-shore outsourcing will all increase over the next few years and certainly, as I believe, even more in the next decade. The recent backlash that describes failed or too-expensive outsourcing deals – while in many cases are absolutely justified – will be crushed by the inevitability that the above three trends – among others – will create.

While all of these trends are important, I think the most troubling one is the technology-avoidance strategy practiced by so many undergraduates today. It’s as if they’ve all but given up on technology careers, believing instead that they’re better off studying accounting, communications, or history. At least the history majors can help us understand what happened to the US technology market in the early 21st century.