The end of IT outsourcing as we know it?

What if you suddenly lost a third to two-thirds of your IT staff? Or, what if they were suddenly 50% to 100% more expensive? Can’t/won’t happen? Think of what could happen to the H-1B program. Ironically, the cloud may save you.

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You: CIO. You: VP of infrastructure. You: VP of application maintenance.

You know what you did.

You know that the biggest single expense in running an IT shop is labor. Your legacy IT departments — which constitute the majority of companies — are particularly vulnerable because your older infrastructure and applications require extensive, labor-intensive customized care and feeding. You were under pressure to reduce costs. You are always under pressure to reduce costs. So you succumbed to the siren song of the outsourcers to lower those costs.

They did it through labor arbitrage. They replaced Americans working in the homeland with much less expensive Indian IT workers — some in the U.S. and some in India. To get the Indian staff to the U.S., they relied upon a U.S. government program designed for a very different purpose: the H-1B visa.

Originally, according to federal rules, the visas were intended to bring in foreign workers with college degrees and “highly specialized knowledge,” mainly in science and technology. For years, outsourcers (primarily Indian in origin) have been using the H-1B visa program to import cheap labor — often without “highly specialized knowledge" — to undercut U.S. jobs in IT and other sectors. Almost half of these visas go to the big Indian outsourcers or U.S. outsourcers with big Indian operations. These accounted for almost 130,000 jobs between 2005 and 2014 (latest data available).

Sadly, U.S. corporations — many household names — have been willing accomplices in this travesty, all in the name of reducing their costs. Examples include Disney, Toys R Us, New York Life, Eversource Energy in Connecticut, Cengage Learning in Ohio, and many more. Those are only a few whose stories happened to get covered by the media.

These companies know what they are doing, and they know the implications if the word were to get out. Why else would they insist upon severance agreements with terms that state that the displaced U.S. employees cannot disclose training their Indian replacements or the true reason for their termination if they want to maintain their severance benefits and not be sued in court?

Year after year, attempts were made to rectify this injustice. But, by making common cause with Silicon Valley and beating the drum that U.S. technological excellence and prosperity required this system, the loss of U.S. jobs continued. Well the dirty little secret is out. While Silicon Valley pays upwards of $150,000 for workers on a H-1B visas, average yearly pay at the Indian outsourcing companies is only $69,500. In 2014, the top Indian outsourcing firms — Tata, Infosys and Wipro — brought in 12,000 people through the visa program. Microsoft, Google and Apple brought in 2,000 in all. Now, the times are changing. The new administration is wise to the scam and is studying new rules to finally right the wrong.

What are you going to do? H-1B visas only last for three years, with a renewal for another three — assuming that rule continues. Take a look at those outsourcing staffers. How many have been with you and for how long? If (when) they go away… well, those systems just won’t stay up by themselves, will they?

Time to bite the bullet, take a page from the leading edge of IT — cloud computing. When you use a hosted service — whether for infrastructure (IaaS) or applications (SaaS) — a key characteristic is that the amount of labor required is phenomenally less than the in-house equivalent in a legacy shop. Your challenge is migrating your portfolio to these new platforms.

The good news is that there are ways to get there. The bad news is that you need to tell senior management that it is going to cost money and that there will be disruption. Despite the work you have been doing trying to rationalize your portfolio and move to better platforms, you still have some real ugly ones, don’t you? They seem to have been there since the day the earth cooled and are going to be bears to deal with.

Lastly and ironically, your current provider of outsourced IT services won't want to lose the revenue stream you have been feeding it. A good bet is it will want to keep some or all of it. Perhaps you could get the vendor to move you to the cloud. After all, it will be in a bind if (when) it is mandated to ramp down its use of H-1B visa holders. And you have the company under contract to deliver price and performance.

Think about your leverage — your outsourcer is. The leader of Infosys has already recognized that his business model must change, and he is advocating getting rid of H-1B holders and hiring Americans.

What a world!

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