Outsourcing Comes Back Home
July 23, 2018 Timothy Prickett Morgan
Getting a full-time job at a company that uses an IBM i platform as its main backend system is not any easier now that it was a decade or two ago, but getting work in the field – particularly as an independent contractor or one working from an outsourcing provider located within the United States – seems to be looking up.
To get a feel of what is going on out there in the IT job market, we had a chat with Harley Lippman, founder and chief executive officer at Genesis10, which provides job placement services as well as domestic application development outsourcing services in the United States through 19 regional offices. I am amazed that I have not talked to Lippman before, but he is an avid reader of The Four Hundred and reached out to us for this chat. This just goes to show that there is always something new to learn, and someone new to learn it from.
Timothy Prickett Morgan: I am itching to compare and contrast what you are seeing in IBM i staffing and outsourcing with the general IT market that you also serve. What are the general trends that you see with programmers and system administrators? What is going on out there, and how does it compare across the industry and across time?
Harley Lippman: The first big thing happening across the entire IT sector is something see reflected in our recent survey of Fortune 1000 companies, and we have learned that there is more money being spent on doing work in the United States than in doing it offshore. That is a big change. For a long time, work was going offshore, and now companies are focusing on their onshore capabilities more. We found in our survey, which had 235 respondents from the Fortune 1000, that looking out into the future, 46 percent of them were looking to get talent onshore while only 11 percent were looking offshore.
There are many reasons for this. First, companies are not able to develop the talent pool offshore, and that is a big issue. They need to move their application development to more agile methodologies to compete in the marketplace. And you have the same issues at the companies with the IBM i operating system, and you probably know better than me, that there is an aging workforce there.
The challenge is to get millennials interested in IBM i. If you can do that, these millennials would be in the catbird seat because there is a shortage of younger folks working on IBM i and at the same time companies don’t want to just do waterfall development, as they have in the past, but they need to do more agile development to get faster turnaround and better ROI on application development and for the business.
But we see the data from other places aside from our own business, such as a survey that KMPG did earlier this year, and they surveyed 4,000 IT leaders and that survey shows that 28 percent of respondents were increasing their onshoring spending, but only 17 percent said they were going to increase their offshore spending.
TPM: What is happening between outsourcing and internal IT staffing? Are people wanting to onshore the work, but still not take on full time employees on their payroll or consultants under contract? What does a typical IT shop look like in terms of the split between work done internally and work done through any kind of outsourcing?
Harley Lippman: We do both internal staffing and domestic onshoring, so we can see the full picture. More and more, companies are going to domestic outsourcing, and I will tell you why. It fills a gap between offshore and onsite, and domestic or onshore outsourcing is now the third leg in the stool. Not in particular order, here are the issues. In a regulated industry, regulators surely do not like application development and data moving offshore. There are risks with intellectual property being stolen, and with security there is a risk of information also being stolen. There is a lot more hacking so the risks are generally higher. You also have geopolitical risk. India is the epicenter of offshore outsourcing, but a lot of work is also being done in the Philippines and in the Ukraine, places that were seen to be stable but now are not. Moreover, whether they are Democrat or Republican, companies want to be more aligned with the Trump administration with regards to employment and bringing jobs back.
There are other issues that drive domestic outsourcing. The huge shortage of IT resources. I do not remember any time in my lifetime when there was such a huge shortage of people with IT knowledge. As an example, if you are looking for Java developers in Atlanta, maybe direct employment gives you something like a fraction of a percent of Java developers in the United States. Genesis10 has locations all around the country, and you might gain access to 20 percent of the Java developers. This is huge when there is a shortage of IT staff at the same time you want to deepen and widen your bench. By doing domestic outsourcing, you can diversify your workforce and minimize risk if, for instance, you have work done through a domestic outsourcer supplying staff to you through six different locations, just to give an example.
Importantly, this eliminates co-employment and human resources risk. Almost all Fortune 1000 companies have a limit on how long contractors can work onsite because they do not want to be accused of employing people and be responsible for medical benefits or severance or other benefits that full time employees get. The tenure limit is typically a year, sometimes it is two years. But if you work in an outsourcing delivery center and get your paycheck from there, you are not a co-employment risk and there is no tenure limit. Think about the impact of that tenure limit on productivity. It takes a programmer anywhere from three to six months to be optimally productive, even if they know the architecture and the business. There is a huge learning curve learning the systems, the code, and the office and business culture. The human resources risk is things like a slip and fall or a sexual harassment lawsuit. By going to the outsourcer, this is our problem, not yours.
There are challenges with the subtleties of language in an offshore outsourcing setup, and there is also a very big issue with rework. We hear staggering numbers that somewhere between 40 percent and 80 percent of the work is done over in offshore outsourcing deals. There is a lot of miscommunication when you are 10 time zones away. What often happens in these cases, making it even worse, is that because of the time zone differences, the A people at the company talk to the B people at the offshore outsourcer and the B people at the company talk to the A people at the offshore outsourcer. You rarely get the A teams together, and this increases the miscommunication and therefore the rework.
This rework is the kiss of death for two reasons. One, you pay time and materials a second time, but two, your business is competing in the market and has lost precious time because you have to do it over again.
TPM: I assume that each and every one of these issues applies equally well to the IBM i platform as it does to any other platform. You might have a different sized pool of experts or a different demand for certain talents, but the obstacles remain the same. Correct?
Harley Lippman: Yes, the issues are the same, but I think it is actually worse because you have that aging workforce in the IBM i community. With fewer people being available, the problems compound and the challengers are even greater.
TPM: Has this driven up the cost of programmers and administrators over time? I would have expected for salaries to increase under these conditions, but maybe there are other pressures keeping salaries down? I certainly have not heard of big salary increases in the IBM i community, although I admit I have not seen good salary data for the OS/400 and IBM i community, particularly for RPG and COBOL programmers, for a long time.
Harley Lippman: My understanding is that wage deflation has taken its toll on these RPG and COBOL folks, both with IBM mainframes and the IBM i midrange. Even though there are fewer of them and much demand, they still lag behind. That’s a good observation.
I think that companies are struggling, particularly with the cost pressure that publicly traded and large companies have, and consequently, training has gone by the wayside compared to a few years back. So now, companies with the IBM i platform, for instance, are really in a pickle. That is why they are trying to get millennials interested in the platform and do agile programming, too. And it is good that IBM has embraced a lot of open source tools to help this along. But the atmosphere for training is so much harsher than it was in the past, and IT managers have a really hard time getting funding for it. What we hear is that it is slow going in this regard, and that is precisely why they are reaching out to companies like Genesis10, who train millennials to work on IBM i and we also help them with the agile methodology.
TPM: Do you have a supply/demand issue yourself for the IBM i platform?
Harley Lippman: No, we are fortunate in that we can find people. Not everyone is so lucky. Over 40 percent of the people in the IBM i market in the United States are located in seven key cities where there are lots of people with these skills: Houston, Atlanta, San Antonio, Jacksonville, Dallas, Phoenix, and New York City. And that is a conservative number.
And just to give you another data point, in the last two years, the number of IBM i job postings has risen from 8,000 to 14,000, but the talent pool has remained flat.
TPM: I am absolutely dumbfounded that this does not cause rising salaries and benefits.
Harley Lippman: Me, too, and I think eventually it will have to. And you could tell this to millennials, who want to make an impact. They could lead a transformative effort and play a key role in a well-designed strategy at an IBM i shop rather than trying to compete for a job at Google or Facebook.