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The Death of Domestic Programming

  Article published in DM Direct Special Report
December 21, 2004 Issue
 
  By Russell Ruggiero and Rex Brooks

The dynamics of the IT landscape have changed greatly since January 1, 2000. Many job areas have been adversely affected, but none more than domestic programming. This sector has been hard hit by various factors that include the end of Y2K, three straight years of negative growth in IT spending and offshore outsourcing. The loss of American jobs is a very serious matter. This article will expose the main impacts on the programming landscape. In addition, it will examine probable government and private supported initiatives to help stem further job losses.

The Past

The original purpose behind the creation of the Internet may be directly attributed to a cold war landscape that required governments and related agencies to maintain a dependable level of communication between vulnerable central facilities to prevent the decimation of military-industrial information resources and command and control centers. As a result, the Defense Advanced Research Projects Agency (DARPA) net or (ARPANet) was created in the United States. This network was adapted by the Western academic research community to the development of hypertext by the multinational scientists at the European Organization for Nuclear Research (CERN) facility to avoid duplication of experiments and maximize the utilization of resources regarding the one and only large particle accelerator for Western Europe. The salient point is that necessity in the form of vulnerability of communications networks and an early scarcity of expensive research resources brought this now ubiquitous phenomena into being, where none had existed before.

However, the preexistence of the electronic media of communications such as the telegraph, telephone, radio and television had established an existing infrastructure that was simply ready to be exploited in new ways. The Gopher, Archie and Veronica hypertext search tools of the seventies gave birth to Mosaic, which was invented to add a graphical display to hypertext. Hence, the birth of the World Wide Web/Internet. It is important to note that the Internet was initially devoid of commercial interests, but this pure status was doomed to change in a wildly exponential growth spurred by the media.

Because its development had taken two decades and appeared hugely revolutionary, most were still somewhat in awe of the Internet's limitless potential. However, the advent of Y2K helped change perception of the Internet, from a sense of wonderment to one of economic viability, while simultaneously spreading its presence across different industries and geographic locations around the globe in a compressed time frame.

The necessity of protecting legacy databases and applications from a possible disaster of unprecedented proportions propelled the entire global economy into a spate of purchasing the latest state-of-the-art equipment and IT infrastructure quite apart from normal business cycles for capital investment. This mind-set does not now apply, and a serious retrenchment is currently being witnessed. It is important to note that there is not at this time a secondary impetus to drive adoption of faster, more powerful computer technologies, let alone the need for purchasing never-ending upgrades to software. As a result, there is a concomitant weakness being uncovered in the engines of the previous tech wavelets, such as Windows 98 and 2000 and the various version numbers for the Microsoft Office Suite, and the host of software such as the near-yearly offerings of Adobe and Macromedia. After the first major wave, there were, smaller second, third and fourth waves of technological development augmented by performance and bandwidth improvements embodied in Moore's Law. These cycles occurred at exactly the same time that the existing infrastructure was ready to exploit these developments, and together this gave rise to the Internet. During the boom years, Internet related companies (e.g., hardware, services, software, etc.) experienced both exponential growth rates and inflated speculative market capitalizations. However, the good times would come to an end in March 2000, coinciding with fading Y2K concerns.

The Present

Times have not been kind since the end of Y2K for the IT community. Case in point: In a recent IDC study, the firm states the percentage change on technology spending in constant dollars was down in 2001, 2002 and 2003. With IT spending down, businesses and organizations were and are looking to maximize their return on investment (ROI). As a result, certain IT jobs have been moving offshore to countries that include India, China and Russia. The areas of domestic programming, call centers and maintenance have experienced the greatest job losses during this period, which may be attributed to offshore outsourcing. The Bureau of Economic Analysis states in their most recent report (2001 latest complete figures available) that there are more workers employed by U.S. companies in foreign countries than U.S. workers employed by foreign companies. It is fair to say that the offshore outsourcing of application development, call centers, and maintenance jobs has hastened since 2001. A good example of the trend correlates to projected annual sales numbers by the leading Indian outsourcing companies (Infosys Technologies, Satyam Computer Systems, Tata Consultancy Services and Wipro), which are all expected to top the $1 billion mark for 2004. Worldwide spending on IT services provided by offshore outsourcers is expected to experience a growth rate of between 15 - 20 percent over the next five years. Adding insult to injury, the U.S. Citizenship and Immigration Services recently announced on October 1, 2004 (The first day of the U.S. government's fiscal 2005 year) that they had received enough visa petitions to hit the annual 65,000 cap on H-1b allotments. The aforementioned events will no doubt lead to further job losses in the area of domestic programming. Estimates vary, but by the year 2009, United States business and organizations are expected to have between 30 - 40 percent of their programming work done offshore.

The Future

The dot-com bubble bust has cast a pall on the IT landscape and students contemplating or enrolled in computer science programs at domestic colleges or universities. For example, high school students contemplating careers may steer away from computer science programs because of both high costs and job uncertainty at the end of the completed curriculum. Prospective students' long-term vision is to secure a job in a stable and growing industry. Unfortunately, the current domestic economic malaise and offshore outsourcing will likely curtail the number of prospective high-school students contemplating computer science programs at colleges or universities. In the same way, current domestic economic malaise and offshore outsourcing has created a dreadful environment for students graduating with computer science degrees in 2004.

Regrettably, these students entered their chosen curriculum at the height of the dot-com bubble and presently face a very inhospitable post-bubble, busted job market. Compare this to the IT-ascendant days of the 1990s when the Y2K phenomenon added a real-world baseline necessity to the dot-com bubble. This is what we mean by the vulnerability built into current American top-level management's decision making. The dot-com era was built upon a marketplace that fueled high expectations of immediate short-term, relatively unearned profits without much understanding of the true basis on which the vaporware culture of IT awareness was built during the period when the very concept of the CIO was invented.

Analysis

The demeanor and outlook of the domestic programming landscape is one of deep pessimism. The aforementioned statement may be substantiated by three main components that include: A) The weak overall domestic IT environment B) The outsourcing of programming jobs to foreign counties such as China, India and Russia C) The lack of domestic computer science graduates entering the job market. One cannot blame American business for the weak economy, but one can certainly hold American business responsible for giving away jobs, and not properly promoting computer science as a future career path. Some exceptions may exist for the latter, but they are few and far between. In a nutshell, America is losing a key asset (programmers) and a future talent pool (computer science graduates) because of shortsightedness by both the government and private sectors.

American businesses (companies conceived and incorporated within the United States) are allowing foreign competitors to eat their lunch. Case in point: In 2000, GM had approximately 35 percent of the domestic auto market. Its market share has since dwindled down to 28 percent in Q3 of 2004. A good example of how Detroit is stacking-up against foreign competition can be related to engine volumetric efficiency. The 2005 Honda Accord pushes out 240 hp from 3.0 liters, while the recently introduced Pontiac G6 makes 200 hp from 3.5 liters. Higher output from the Honda offering maybe directly attributed to technological innovations such as advanced engine management systems and variable valve timing (VVT). In a nutshell, Asian and European auto manufacturers have surpassed the United States in automotive technological prowess. The United States is now in a "catch-up" position rather than a "leadership" position.

As more and more IT jobs move offshore, so does our ability to innovate and compete on the domestic as well as global levels. Listed below are some key areas that are expected to be directly impacted.

The Ability to Deliver Enterprise Level Applications

Many large-scale rollouts such as CRM, ECMS and ERP have been delayed during the last four years because a weak U.S. economy. During the same time period American businesses have been reducing their in-house IT staffs via layoffs, while accelerating the pace of offshore outsourcing. Hence, many domestic businesses and organizations are currently unprepared to properly deploy enterprise-type applications into production. Listed below is a scenario that depicts how job cuts and offshore outsourcing have severely affected a hypothetical American business called Company A.

The American economy experiences two consecutive strong quarters of GDP growth (7 percent plus). This development allows Company A to reconsider the rollout of a new central database at their Los Angeles location, which has been delayed numerous times because of the weak domestic economy. This implementation calls for various IT skills sets such as program management, systems analysis, and programming. Unfortunately, Company A has let go of most their program managers and systems analysts during the lean years of the New Millennium. In addition, 40 percent of their programming work has been delegated to an offshore company based in India, which leaves an infinitesimal amount of internal programming bandwidth available. Listed below are the two main alternatives that Company A may choose to help staff the database project.

Domestic Alternative

Rather than pull from in-house talent, Company A is now at the mercy of a hot domestic economy, which means that key IT skills are in great demand. Because of demand, critical IT skills sets such as program management, systems analysis and programming are in very short supply from the East Coast to the West Coast. The strong economy and lack of in-house talent carries with it a two edged sword that will result in: 1) Higher prices for hiring full-time employees or consultants 2) A protracted time to market because of the time its takes to hire and train full-time employees or consultants.

Offshore Outsourcing Alternative

Company A's data warehouse resides in Los Angeles, and security is an enormous concern. As a result, a great deal of work will be performed on site. Company A has enjoyed a decent, if unspectacular experience with its offshore outsourcing partner during their three-year relationship. Calling upon its offshore outsourcing partner, Company faces A the following challenges that include: 1) Little or no cost advantage: travel, lodging and food expenses will erode most, if not all the benefits of using the services of offshore outsourcing personnel compared with internal employees or local consultants because of the high cost of living in and around the Los Angeles area; 2) Loss of control: The nature of a database migration is especially programming intensive and must be addressed accordingly. If the offshore outsourcing path is taken, then Company A will have almost 60 percent of its overall programming work done offshore, which means less control over key factors that include currency rates, turnover and security; 3) Poor communication: The oral and written skills of the offshore outsourcing personnel will most likely not be up to par with Company A's internal IT staff, which may cause assorted communication problems that could impact the quality of work.

Knowledge of and expertise in ones environment are valuable assets. Company A decided to take a short-term approach, which has devastated its IT department. It did not properly prepare for the economic upswing. As a result, it is at the mercy of a both strong domestic job market and a risky offshore outsourcing alternative.

The Ability to Nurture In-House Talent

Nurturing in-house talent has proven to be an important foundation component of American business. The American dream has always been about working hard and trying to improve oneself to achieve a higher standard of living. The model of working a full-time job while attending night classes at a reputable establishment of higher learning to acquire a degree (e.g., MBA, Ph.D., etc.) has proven to be very successful for millions of Americans. Many domestic businesses and organization have tuition reimbursement programs to help nurture their in-house talent. Accordingly, these types of programs have proven to be quite successful in helping employees move up the corporate ladder, in some cases, all the way up to the executive-level (e.g., CEO, CFO, CIO, etc.).

During the last four years many American businesses have put their IT departments in precarious positions by shedding valuable employees, while accelerating the pace of offshore outsourcing. As a result of this shortsighted approach, anxiety is the "buzz" across the IT community. While pundits push the ROI mantra, reality dictates that job cuts and offshore outsourcing promote unease and disloyalty among staff members that remain with businesses and organizations, which promote this type of approach. In a nutshell, job cuts and offshore outsourcing will severely impact American businesses ability to organically grow the future application developer, project manager and systems analyst of tomorrow.

Where will the application developers, project managers and systems analysts of tomorrow come from? With American businesses cutting key employees and the acceleration of offshore outsourcing, the United States will have no choice, but to look at countries such as China, India and Russia to fill its future IT needs. Accordingly, expect foreign nations to nurture in-house talent by sending these individuals to domestic schools as well as colleges and universities based in the United States. Case in point: In a recent official report, figures state that India produces approximately 250,000 IT engineering graduates annually verses 60,000 for the United States. This line of attack will allow foreign nations to organically grow their domestic labor pools to satisfy the global demand for future IT services. Unfortunately, history does have a habit of repeating itself. America will soon again be relegated to a consumer, rather than a producer status nation in another important industry it once dominated.

What Can Be Done?

For a start, there are two deep philosophical changes that must be incentivized, to use a word that means "give 'em a tax break." It is also important to realize that well-intentioned efforts to "simplify" the federal tax code will almost certainly fail to eliminate loopholes while almost certainly eliminating any ability to directly influence economic remedies through tax policy. However, since such efforts run directly counter to the main key to congressional reelection in the form of local programs funded by the federal taxpayer, it is unlikely to succeed. It may, unfortunately, poison the atmosphere needed in Congress to correctly "incentivize" domestic investment in what may be called IT expertise infrastructure.

The first philosophical change is to encourage awareness of the problem by allowing businesses to reduce their tax liability when they "invest" in employee development training, changing employees from costs to investments or assets. Improving assets, whether physical plant and equipment or employee training should be deductible and there should be an ongoing allowance for reducing tax liability on the improved productivity gained from this investment. If necessary, we may have to consider an outright subsidy for promoting this kind of long-term planning and short-term behavior.

The second philosophical change is to make the same allowance for employee and employees' dependents medical insurance coverage. Good health practices are seldom seen as items in quarterly or annual reports except as costs, but the fact that good health practices prevent losses due to illness and injury needs to be recognized.

How the latter is accomplished is something that needs more thought and attention to details than we can give it here, but the essential fact is that employees and the development long-term of healthy and long lasting employee-employer relationships is a necessity. This will be difficult because it runs directly counter to recent economic practice and theory, but we are confident that it will be determined in the next decade as the single most important element in the health or lack thereof of the American and World Economy. The fact is that there are no short-term fixes that we can apply as a band-aid over this open wound, but there is one last philosophical change that stretches over this and many other IT decisions in the near-term future.

There needs to be a fundamental recognition that IT is the actual heart of all organizations. Part of the reason why we have such quagmire at present is that in the dot-com bubble, the position of CIO was invented as a way to legitimize a great deal of wasted effort and vaporous product development or testing. It was not thought at that time that IT and communications were essential to all parts of all organizations, but especially to enterprises. From supply chain to inventory, to sales, to financial accounting practices, to human resources to customer relationship management, sound information and communications are absolutely required. With this understanding that will come about in the next few years or so, we will be much better equipped to proceed with sound decision making, good knowledge management and a fundamentally well-founded approach to building the economies of the future.

Bottom Line

A curious parallel may be drawn between the current War in Iraq and the domestic IT landscape. The U.S. military is now desperately trying to fill the ranks of enlisted ground forces by trying to call into service prior serving and retired soldiers in their late thirties to mid forties. This occurrence was brought about by underestimating the original occupation requirements and the greater overall post-occupation needs by the U.S. military. Has American business made the same mistake by underestimating the in-house talent and bandwidth needed to deploy enterprise-type applications into production? Unfortunately, history does have a habit of repeating itself.

References:
The Bureau of Economic Analysis - http://www.bea.doc.gov/
The Economist - www.economist.com
International Data Corp - www.idc.com

...............................................................................

For more information on related topics visit the following related portals...
Outsourcing.

Russell Ruggiero is a senior IT analyst. He is the acting chairman of HumanMarkup.org. Ruggiero has authored more than 150 articles and reports for well-respected firms that include Gartner, Inc. and Source Media. He may be reached at rrugg55041@aol.com.

Rex Brooks, president of Stabourne Communications Design, has pursued an extensive and wide-ranging career in advertising art direction, corporate identity and graphic design. His ongoing interests have included the applications of computer technology in his field and applying concepts from the fields of psychology, sociology and advertising in the area of semantics and semiotics for the purposes of improving communications in digital information systems. This led to his involvement with OASIS in the HumanMarkup Technical Committee helping to create the Human Markup Language. He is the cofounder of the Content Development Working Group of the Web 3D Consortium and Humanmarkup.org, Inc. and serves as vice chair of the OASIS HumanMarkup Technical Committee. He is also actively serving on the OASIS Web Services for Remote Portlets and Emergency Management Technical Committees. You can reach him at rexb@starbourne.com.

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