Outsourcing Technical Jobs To The Third World Will Ultimately Cost More Than It Saves

There are times when companies need to restructure their operations and cut staff or even whole departments if capital is scare and a particular business unit cannot be competitive on a risk / return basis. There are also situations where staff cuts are a result of sheer bloody mindedness from short sighted management who do not fully understand the underlying issues and the consequences of their actions.

The forced redundancies in Westpac IT’s Testing Services Department in order to outsource the work to India is an example of the latter.

When a piece of software is created, Testing Services simulates how customers will use it. They test the workflow ie. Do all the boxes on the screen accept the desired type of information and correctly perform the intended operations? Is there sufficient help to show the user what to do? Does the entered data save where it is supposed to? Does it retrieve properly? Do new screens pop up when they are supposed to?

They also try to break the software. That is, they enter data in unintended formats or make the wrong choices on the screen and see if the programmers have written the proper error handling routines to not only prevent the software from crashing, but to explain the error to the user and in some cases, autocorrect.

In a bank, this means enterprise level software: internet banking, account management systems for tellers, loan application and processing systems. There are serious reputational consequences if any bugs slip through and the software crashes in the live environment.

The point is, testing software like this is not a purely robotic exercise. It requires knowledge of both the business processes supported by the software and the needs and competence of the end users.

To whom are Westpac outsourcing these tasks? The Indian (now global) IT consulting firms Tata Consultancy Services and Infosys. If you believe the claims these firms make about their industry experience, it might seem they have the skills to handle comprehensive testing of enterprise level banking software.

If you read quotes from the redundant Westpac staff, reality is somewhat different:

The new recruits don't have any experience in testing systems and most of them have never worked in a bank.

It is extremely demoralising to train people who are highly incompetent to take your own role. We get constant stupid questions every single day. Basic tasks that we are expected to perform they can't perform.

Westpac management will probably try to spin these comments as sour grapes, but their “Head of Employee Relations” ie. Head of Payroll, Michael Johnston gives it away when he says: “You will appreciate that there may be a greater level of assistance expected as part of any transition activities”.

Great work, Michael! Replace a department of experienced workers who know the business and can easily be walked through the business requirements and functional design documents with a bunch of data entry operators with no banking industry experience and no knowledge of Australian consumers. The developers will now have to spec out the testing in such minute detail that they may as well write a set of automated test scripts themselves and do away with Tata and Infosys altogether.

Additionally, Westpac’s “employee relations” will now be poisonous across the whole IT department as no-one will feel they can trust management. But Michael Johnston will get a bonus at the end of the year, won’t he?

Although I see this instance as a gross abuse of management authority, I can also see where in house IT departments contribute to themselves being seen as bloated cost centres.

Dealing with IT in a large corporation can make even the Buddha want to get a gun and blast away. They too often have a culture of absurd bureaucracy and little sense of commercial realities, such as the need for back and forth during development.

Usually, their Design Costing Team or similar will estimate such overinflated timings and man power requirements for each task that with transfer pricing requiring actual expense items against departmental budgets, managers often canvas outsourcing the job.

Economically, that would be OK if the outsourcing was to a local firm, with specific expertise and the ability to communicate quickly and easily.

My experience of working with Indian IT firms is that they are robotic. Everything must be specified to such minute detail that you may as well write the code yourself. Although there are some very good Indian IT people, you won’t be working with any of these. The people you will actually deal with have no understanding of your business processes or customer requirements. Their code is inelegant, highly repetitious and poorly commented. Large slabs appear to have been copied from other programs. Mistakes are covered up and denied.

What will be the cost of all the extra time dealing with the new problems created by the outsourcing? I’ll bet Westpac didn’t factor that in.

Will Westpac now hold more capital for operational risk, given the lower quality of the IT product testing? Of course not. They will probably deny the quality is lower.

I’ll bet they also didn’t factor in the drop in productivity due to decreased employee morale. What an unbelievable insult! To be made redundant and then asked to train your clearly less competent replacement, as well as being required to be party to sending another Australian job to a low wage, third world country, thus lowering the standard of living for most Australians, while helping some oily cunt in senior management meet their ill conceived KPIs.

The Head of HR’s response? “Staff need to act professionally in assisting their replacements”.

How about they act in a rational economic, business like manner instead? That is, you fuck me, I’ll fuck you.

• If you have sick days owing, you won’t get paid out for any unused ones. Call in sick. Go to a doctor and tell them how stressed and depressed you are, how after putting on your suit to go to work, you literally had to run to the bathroom to vomit from the sheer weight you felt descend upon you. Ask to be referred to a counselor and go on stress leave. A slew of stress leave applications will soon have someone’s outsourcing scheme (and KPIs) in a mess.
• If you do go to work, work only the required hours. Work as slowly as possible while you’re there. Take a long lunch. What are they going to do? Fire you?
• Delete any documents you have created from the system. Management won’t even know they are there to ask you about why they are gone.
• When training your replacement, make your explanations as cursory and ambiguous as possible. Then you can blame any failure to learn on the inexperience of your replacement, or a language problem. If you’re really feeling aggrieved, leave out important information on each system. You can even tell your replacement things that are wrong as long as you don’t do it in writing. There will be no proof the other party just didn’t simply misunderstand.

Management has shown its staff no loyalty. Why should it expect any in return?

If we want to maintain our relatively high standard of living, Western countries cannot keep outsourcing jobs to low paying countries. There are many more people in those countries than there are of us. Their ability to train sufficient numbers of people to perform any given standard of job is faster than is our ability to retrain our own people to do a higher standard of job.

This is where the classical theory of comparative advantage breaks down. Third world countries will replicate our manufacturing and service industries, not develop complementary industries. They will work for much cheaper wages. This may seem irrational to classical economists, but the cost of the "inefficiency" now will be repaid in the future when they gain market share. Because they have so much larger populations, only a small percentage of them need to gain equivalent levels of competency as our domestic workforce, but almost all of our workforce will need to constantly retrain.

This dynamic is not sustainable. It can only result in lower wages for most Westerners and thus increasing income and wealth disparity and social division.

Large sections of our manufacturing industries have gone overseas. Now our service industries are following. What will be left outside of small business? Medicine, law and real estate. Sport? Mining and tourism, the public service, plus a few senior management positions in finance and insurance?

Liberalism does not imply the absence of the government from the economy. An unregulated market for large corporations does not necessarily create better economic outcomes, either for most citizens or for the economy as a whole.

A free society requires many balances in the distribution of power within, so that citizens believe they have a genuine stake in that society and will derive an acceptable reward for an honest effort in life. This will not happen if we commit economic suicide by allowing the management of large corporations to keep sending jobs overseas in order to increase their bonuses.

Corporations need to support the structure of the society which allows them their prosperity. They cannot make record profits while outsourcing jobs and expect citizens to not demand laws to curb their behaviour.

This is one area where the government needs to involve itself in the economy. Apply a punitive, default payroll tax to any jobs deemed to be outsourced to countries without comparable wages and working conditions. A certain number of jobs need to be kept onshore. Large companies like Westpac can view the extra cost as a proxy super profits tax. Actually, it doesn’t matter how they view it. Their profits are sufficient and the salaries of their senior management already excessive.