The outsourcing impact

In October 2000, Michael O'Neill had just put a down payment on a house, and he and his wife were excitedly awaiting the birth of their baby. But one day at work as a LAN administrator for one of the country's largest insurance firms, he and 130 of his colleagues were told the company's LAN administrative and help desk functions were being handed over to an outsourcer.

"When it happened I was angry and confused. What-ifs ran through my mind," O'Neill says. "I was looking for security - I wanted a steady salary package."

O'Neill had been with his employer for five years and thought he would work there until retirement. But the company, which asked not to be identified, decided to cut costs by outsourcing IT functions to Unisys in a three-year contract.

As part of the deal, O'Neill and 30 other IT pros moved to Unisys; the others resigned, were laid off or offered other positions. He now works at the same office and continues to manage the insurer's LAN, but his paychecks come from Unisys, and his title is senior customer service engineer.

A Meta Group study says nearly all North American IT departments will outsource at least one essential technology operation by 2005. Last year, almost three-quarters of North American IT departments outsourced between 10% and 50% of their IT functions, and spending on outsourcing is growing at a 20% annual rate worldwide.

Of the corporations that outsource, 60% of those deals also involve the acquisition of the user organization's IT staffers, according to Meta.

Network executives who consider outsourcing need to give much thought to the people aspect of the deal, as well as the transfer of systems, to reap the promised benefits. One consideration is when to broach the dreaded 'O' word to your staff - at the outset of the due diligence process with the potential supplier or after the contract has been signed?

O'Neill and his co-workers were angry because they weren't told about the deal in advance. Rumors had begun to circulate that summer, and management denied it. "Thirty to 45 days later we were told it was all a lie," he says.

Similarly, Rick Tompkins, director of network engineering for CSC Americas, was not told that his former employer, aerospace and defense group General Dynamics, was going to outsource all of its IT operations to CSC until his company was ready to sign the deal. Ultimately, though, all of the 1,200 affected IT staffers were offered jobs at CSC.