If all your neighbors lose their jobs, you call that an economic recession. If you lose your job, you call it a depression. The same reasoning seems to apply to the enormous attention that computer people are suddenly giving to outsourcing. The fact is that CFOs have always pushed for outsourcing everything associated with the cost of goods sold. What is different now is that CFOs have shifted their target and placed IT on the top of their list of functions that should be subjected to competitive pricing.

Outsourcing is widely practiced with regard to factory labor and materials supplies, without distinction between domestic or foreign sources. It is labeled as “competitive purchasing,” “best value procurement” or “commercial off-the-shelf acquisitions” (in government). After 50 years of abnormal growth in the number of IT jobs, and after a period of above-average increases in compensation for IT people, CFOs are seeking lower overhead expenses. That’s where IT is most vulnerable, because most of IT is an overhead burden.

A squeeze on profits necessitates cost-cutting. When it comes to picking where to cut, why not select what has escaped pruning for at least 20 years? The CFOs?still nursing a grudge for having lost possession of IT?are happy to oblige [QuickLink 41348].

The CFOs understand that corporations already purchase (e.g., outsource) most of their costs, as shown in the pie chart below of median values for over 2,000 U.S. corporations.

Given the high percentage already devoted to purchasing to gain a competitive cost advantage, the current outsourcing initiatives shouldn’t come as a surprise. Offshore procurement would be a logical choice, since imports already account for 14% of the gross national product of the U.S.

I have calculated “outsourcing ratios” (e.g., the ratio of purchases to revenues) for over 1,000 global companies (see chart below).

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