What RBC’s iGate scandal means for the future of IT outsourcing

It’s called “iGate – Corporate film,” and it’s less than eight minutes long but it serves as good an introduction as any to the IT outsourcing firm at the heart of a scandal embroiling the Royal Bank of Canada this week.

The clip, which is available on YouTube and was posted just last month, features a string of interviews with iGate employees who discuss life at the company and why they work there. Tilak Nag, for example, who works in iGate’s product innovation group, is shown talking about why firms like iGate are so attractive to the RBCs of the world.

“What (iGate) does is, go to the client, picks up the process, (and) replicates it in India,” he says.

“(It’s) basically labour arbitrage,” comments Anant Gupta, a colleague in the same group who is standing with Nag, for some reason, on a treadmill.

“Absolutely,” Nag replies. “Replace 20 guys there with 20 guys here.”

It’s all said very cheerfully, but it’s going to be increasingly difficult for any IT outsourcing company to position itself to a client in such a straightforward manner without that client thinking very carefully about the fallout from the world at large.

Although “iGate – Corporate Film” is obviously some kind of public relations exercise, it does absolutely nothing to counter the inherent fear and paranoia of ordinary Canadians that foreign workers are coming to take their jobs. When it was learned that RBC might be using iGate employees to replace some of its IT staff with offshore resources, the federal government ordered an investigation, putting a huge spotlight on the bank’s strategy.

Over the past few days the RBC Financial Group has committed to finding new roles for the 45 IT workers affected and insisted that only one foreign worker permit was involved so far. However the outcry from the media and social media commentators has taken a completely warped and unrealistic perspective. Sorry to burst anyone’s bubble, but almost every large Canadian enterprise does some degree of IT outsourcing, and many of them have probably called upon foreign workers.

What’s ironic is that IT outsourcing has never gone that smoothly, in Canada or anywhere else. When I first started covering this area in the early 2000s, the deals between an iGate and an RBC might have stretched out for a decade. Then there was a backlash as tech services weren’t delivered as promised and companies had to do more hand-holding with the outsourcing firms than they thought they would. Suddenly the deals became much shorter, although Mark Schrutt, an analyst with Toronto-based IDC Canada, says they have more or less stabilized around four years or so.

“The iGate incident will absolutely have an impact” on companies like RBC setting up similar agreements with outsourcing firms, Schrutt says. “It could definitely make the decision-making cycle longer, but that’s not necessarily a bad thing.”

IT outsourcing is not, in fact, just about saving money. It’s dealing with the fact that some aspects of IT maintenance and troubleshooting have been commoditized, to the point where it can be handed off as grunt work and handled like a task at a factory. There is still lots of higher-level IT work to be done, like wrestling with big data and advanced mobile application development, but many Canadian firms are slow to follow such trends. That means the temptation to outsource will be ever-present until firms here start investing in more innovative IT projects.

Companies like RBC have learned that they need to set up agreements with IT outsourcing firms that give them more flexibility to ensure their expectations are met and that they can change the terms as their business needs demand. Now they may also have to think more carefully about the opportunities they may be missing by farming technology out in the first place. Don’t just criticize them for giving away Canadian IT jobs to foreign workers. Criticize them for not finding new challenges for those Canadian IT workers to pursue.