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Outsourcing makes inroads
Study touts creating jobs through cost savings
 
By Kevin Rademacher / Staff Writer

Construction crew leader Jeffery Kennedy demonstrates how he uses the Work Management Information System at Southwest Gas on June 3. The development of the new software was outsourced. Now Southwest Gas employees can better manage work orders and to save money through better time management. From their vehicles, they can upload and download business-related information to and from their laptop computers.
Photo by Matthew Minard

Despite the recent rash of criticism, outsourcing is an effective tool for managing some business operations, industry advocates maintain.

At a recent outsourcing conference in Las Vegas, an industry-sponsored survey was released claiming that while some jobs are lost to overseas outsourcing -- particularly in the areas of customer service call centers and software development -- the cost savings achieved leads to the creation of new jobs.

The survey, conducted by Global Insights Inc. for the Information Technology Association of America (ITAA), claimed that the global technology work force will add 516,000 jobs over the next five years, a number bolstered by the effective use of outsourcing. Without outsourcing and its cost savings, only 490,000 jobs would be created. Of those 516,000 jobs, 272,000 are expected to go offshore, but another 244,000 domestic jobs will still be added.

"Once you factor out some of the displaced jobs in the IT ecosystem, there is still an overall substantial net gain," said Frances Karamouzis, research director with the industry analysis firm Gartner Inc. of Stamford, Conn.

The ITAA study broke down the job growth projections by state, indicating that Nevada could gain as many as 3,741 jobs bolstered by outsourcing savings by 2008.

State labor officials, however, said there is little basis for such projections. Karren Rhodes, a spokeswoman for the Nevada Department of Employment, Training and Rehabilitation, said current employment surveys and statistics do not gather data that would indicate jobs lost or gained through outsourcing.

"There's no hard data that's available to indicate one way or another whether that's accurate," Rhodes said. "If we don't know, how would they?"

Given the recent furor over the subject, however, state officials are discussing future efforts to gather such information in cooperation with the U.S. Department of Labor.

Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, also indicated that there is no evidence to back up the claims of job growth, but he would not discount it completely.

"It's possible," he said, adding that when jobs are shifted, "there are winners and there are losers."

"At least historically, the trade back and forth between countries, in terms of trade specialization, has been a win-win," he said, adding that one of the obvious gains is a lower cost of goods to the consumer. "If you find yourself employed in a particular industry, you may be looking for something else."

Schwer added that there has been little indication of Las Vegas-area jobs being lost to outsourcing. That's mainly because such job loss has been seen in manufacturing and software-development industries.

"We're just not big in those areas," he said. "Our economy is dominated by services. That's an area nationally that has continued to grow."

Meanwhile, opponents continue to sound off. After the ITAA study was unveiled, Forrester Research Inc. updated an earlier study attacking the shift of jobs offshore. That study had originally indicated that as many as 3.3 million U.S. jobs could shift offshore by 2015. The new projections, Forrester said, could push that number up to 3.4 million.

Outsourcing industry officials, however, point out that not all outsourcing involves sending jobs overseas -- a move typically called offshoring. While major technology companies have shifted some jobs overseas, companies outsourcing work to those tech firms typically have only a small portion of the work handled by those overseas employees.

Southwest Gas Corp. of Las Vegas is an outsourcer of sorts. It recently tapped a pair of software companies to help manage a sea of paper.

In the process of building new gas lines -- or repairing old lines -- paper copies of work orders were hand delivered through a chain of six departments. They became subject to handwriting foibles and sloshed cups of coffee. Locating paperwork between departments often required some inventive detective work. Overall, managing the flow of paperwork was chewing up employee hours.

After years of searching, months of development and a $30 million investment, that process has been streamlined. In March, Southwest Gas launched in Las Vegas its Workflow Management System.

The effort to design the program was a collaborative effort between the utility and a pair of software companies. The resulting system has created a paperless system that links workers in the field and the series of departments that track the various stages of their work.

Before the company embarked on the project, it considered developing the system in house, but Bob Weaver, head of the company's information services operations, decided to outsource the project.

Weaver said taking on such a project would have been a three- to five-year venture. Bringing in two vendors -- British software company LogicaCMG and Dallas-based MapFrame Corp. -- to manage the creation of the system cut that timeframe down to 18 months. It also eliminated the need to hire dozens of software developers.

He said providing work to an outside company was a superior option to hiring many employees in-house that would ultimately become expendable.

"We would have had to hire these people with very specific expertise to get it done," Weaver said. "Then when you are done, you have these people on hand that you either have to find something for them to do or let them go ... Neither one of those options is particularly attractive."

Daniel Laffin, an area director for the technology consulting form Keane Inc., said the issues facing Southwest Gas are typical of companies looking to have all or part of a project outsourced.

"There are a lot of drivers behind outsourcing," he said. "In most cases cost might be a drive, but it's not a necessity. In many cases it's that a company doesn't have the resources they need ... The other choice would be hiring a bunch of people and being forced to deal with what to do with them when a project is over."

That's particularly true in a job that deviates from the normal course of business.

"Outsourcing allows businesses to focus on their core competencies," Laffin said. "The money that's saved when outsourcing is money that's reinvested in those core competencies ... I think that's the point that gets lost in the debate."

Weaver also pointed out that for its normal business operations, Southwest Gas has examined additional outsourcing and decided against it. He said that the biggest key when making that examination is, as Laffin said, figuring out where the company's expertise lies.

"Is it going to be something that takes a lot of money, time and effort to become really good at that function," Weaver said. "We backed off because we calculated that we can do it better and at less cost."

Kevin Rademacher covers utilities and finance for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 259-4069 or by e-mail at kevinr@lasvegassun.com.

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