Outsourcing Atrophy: A Cautionary Tale

A few years back, my neighbor, John, and I shared a back fence, and occasionally we would talk over it—or, more accurately, through it, since it was just under six feet high. John worked in the information technology (IT) group of a big bank, a bank which became bigger when it merged with an even bigger bank, and then a little bit smaller when they "rationalized" the staff. John was one of the folks let go. During the process, we talked about, first, the uncertainties that beset employees of any company up for sale, followed by the vexations of integration, the fear of downsizing, the layoff itself, and finally the panic of finding himself in his forties with a wife, three children, and a house to support.

Douglas McCormick

Between lawn-mowings and hedge-clippings, we continued to chat through his job search, which was mercifully short. It couldn't have taken him more than six weeks to land a job at a local IT consulting and computing services firm that specialized in accounting services for cities and towns.

Winter set in, and we suspended the back-fence bonding for the season.

In the spring, we spoke again as we raked the oak leaves and sweet-gum balls from our back flowerbeds. John was exultant.

"We landed the city," he said. "We bid low and they signed the contract. This is huge for us."

I congratulated him.

"Of course," he continued, "we won't make much money at first, but..."

But what?

"Well, over the budget cycle, they'll eliminate the internal staff who used to do the job. So in a year, they won't be able to do the job themselves anymore.

"Another year after that, between job turnover and changing technology, they'll have forgotten how to do the job.

"After three years, they'll have lost the expertise to evaluate our processes in detail. It's a complex system, and chances are they won't have the internal know-how to put together an RFP.

"And after four years, they'll have forgotten that they ever did the job internally at all.

"And then we've got them. We boost the price up to market levels and we've got them for good."

Douglas McCormick is editor in chief of Pharmaceutical Technology, dmccormick@advanstar.com