Outsource?: Competing in the Global Productivity Race


"In OUTSOURCE, Ed Yourdon conveys a nuanced understanding of a topic that too often has fallen victim to exaggeration and oversimplification. Will your job move offshore? That depends. Yourdon explains what it depends on, and what to do about it."

Robert D. Austin
Associate Professor, Harvard Business School

"Is outsourcing a bane, a boon, or a ...

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"In OUTSOURCE, Ed Yourdon conveys a nuanced understanding of a topic that too often has fallen victim to exaggeration and oversimplification. Will your job move offshore? That depends. Yourdon explains what it depends on, and what to do about it."

Robert D. Austin
Associate Professor, Harvard Business School

"Is outsourcing a bane, a boon, or a bother? Yes. Ed Yourdon takes on this vastly complicated issue and makes it all crystal clear."

Tom DeMarco
The Atlantic Systems Guild

"OUTSOURCE cuts through the outsourcing hysteria to present a balanced view of why outsourcing is occurring, how it is likely to impact people's lives, and how to best prepare career-wise for the new realities it introduces. Whether you are a buyer or provider of outsourcing services, or an individual whose career may be affected by those services, Ed Yourdon offers valuable insights that you can immediately put to use."

Ian Hayes
Industry Analyst and President, Clarity Consulting, Inc.

"Ed Yourdon's book on international outsourcing is a major work on an important topic. I think the book will become required reading for all CIOs and officers of U.S. companies that produce software in quantity. As usual with Ed's work, the research is extensive, and the coverage is thorough. Ed has visited many of the international outsourcing labs, so he also offers firsthand observations."

Capers Jones
Chief Scientist, Software Productivity Research LLC

"Ed Yourdon has produced a comprehensive sequel to his 1992 prophecy, Decline and Fall of the American Programmer. His views were much maligned; yet heturned out to be right. To cope with challenges ahead, this book should be required reading by computer professionals who wish to prosper in their jobs."

Paul A. Strassmann
A CIO for 43 years (General Foods, Kraft, Xerox,
Department of Defense, NASA)

"Entertaining and understandable, Yourdon's OUTSOURCE examines the current situation from sociological, economic, and historical perspectives, providing individuals, employers, and policymakers practical insights and advice centered on increasing competitiveness and taking individual responsibility. OUTSOURCE is must-read for those who intend to survive and thrive in this hyper-competitive global economy. It's just what the doctor should have ordered."

Leon A. Kappelman, Ph.D.
Farrington Professor of Information Systems
Director, Information Systems Research Center
College of Business, University of North Texas

"'Nothing personal, just business' has a new ring—and it's a dangerous wake-up call to a harsh side of globalization—a wake-up call that will change your life, your company, our future... Early readers of OUTSOURCE will have the advantage in the job shake-outs and company restructurings that are accelerating now!"

Mo Bjornestad
CEO, SensorWave Corporation

If you run a business, what should you outsource (and what shouldn't you)?

If you're a knowledge worker (inside or outside IT), how can you protect yourself?

How will outsourcing evolve next? What do those changes mean to you?

Outsourcing is not just the #1 issue facing IT organizations: It's driving a profound transformation throughout American business. Whether you're an executive or a knowledge worker, the decisions you make about outsourcing can make or break your future. This book brings together all the information and insight you need to make those decisions—and make them the right ones.

Once, outsourcing was largely limited to IT. Suddenly, it touches everyone from telemarketers to tax preparers, radiologists to market researchers. No American company or knowledge worker can ignore its challenge. Now, widely acclaimed author and consultant Ed Yourdon helps you understand the challenge of outsourcing—and meet it.

IT pros and knowledge workers: Protect your career

Eight realistic strategies for surviving the outsourcing revolution

How to compete with the entire low-cost world and win

Quantify, protect, and enhance your personal ñvalue propositionî

Executives: Make smarter outsourcing decisions

What to outsource, how to do it right, and when to avoid it

Outsourcing, the next generation: Beyond programmers

From telemarketers to accountants, clinical trials to market research

The politics and geopolitics of outsourcing

Backlash at home, upheaval overseas, and a plan for renewal

Along the way, Yourdon assesses the politics and economics of outsourcing, long-term implications for both suppliers and buyers of knowledge-based services, and much more.

Yourdon has been writing about outsourcing since before it had a name. In this book, he doesn't just predict your future, he helps you take control of it.

© Copyright Pearson Education. All rights reserved.

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Editorial Reviews

Publishers Weekly
In 1992, Yourdon published Decline and Fall of the American Programmer, which predicted that U.S.-based coders would "suffer the fate of the do-do bird" as firms shifted jobs from American workers to those overseas in order to take advantage of lower pay scales and less labor regulation; following the high-flying late '90s, that prediction has proved correct for many kinds of programming. A lifetime IT veteran, Yourdon has spent the last decade on the board of directors of a U.S.-based outsourcing firm and its Indian subsidiary, and the result is this insider's look at "knowledge-based" industries: the computer industry, as well as other "back office" operations like mortgage application processing or legal services. Refreshingly, the book is explicitly not designed for managers of any kind, but rather to give employees a sense of trends and context when deciding how to move within their own industries and how to "advise their children what careers and professions they should follow." Yourdon is not an economist, but his praxis-based evaluations, bolstered by reports over the last few years culled from the business press, feel carefully digested and are clearly presented in an affable voice. (Oct.) Forecast: While not sanguine about what's coming for American knowledge workers, Yourdon has their best interests at heart, making this a rare business book indeed-look for strong word-of-mouth sales. Copyright 2004 Reed Business Information.
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Product Details

  • ISBN-13: 9780131475717
  • Publisher: Prentice Hall
  • Publication date: 10/4/2004
  • Series: Yourdon Press Series
  • Pages: 304
  • Product dimensions: 6.30 (w) x 9.30 (h) x 0.70 (d)

Meet the Author

OutsourceAuthor Bio

EDWARD YOURDON has been a futurist, pundit, and advisor to CEOs around the world for nearly 40 years. He has been named as one of the ten most influential people in the software industry and has been inducted into the Computer Hall of Fame along with Charles Babbage, Grace Hopper, Bill Gates, Seymour Cray, and James Martin.

A New York Times best-selling author, his two dozen books include such classics as Nations At Risk, Decline and Fall of the American Programmer, Death March, and Byte Wars. Several of his books have been translated into Japanese, Russian, Spanish, Portuguese, Dutch, French, German, and Polish. He has testified before the U.S. Senate on the Y2K problem, has served on advisory councils of the U.S. Defense Department, and has been a board member of numerous high-technology companies in the United States and India.

Yourdon received a B.S. in Applied Mathematics from MIT and has carried out graduate work at MIT and the Polytechnic Institute of New York. He has been appointed an Honorary Professor of Information Technology at Universidad CAECE in Buenos Aires, Argentina and has lectured at MIT, Harvard, UCLA, Berkeley, and other universities around the world. He has been quoted and interviewed in numerous newspapers and magazines, including the New York Times, Wall Street Journal, Los Angeles Times, Christian Science Monitor, Newsweek, Boston Globe, the Times of India, and several computer trade publications. He has also been interviewed on numerous TV news shows and radio programs, including CNBC, National Public Radio, ABC Evening News, and Fox News.

© Copyright Pearson Education. All rights reserved.

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Read an Excerpt


The Red Queen Principle: "For an evolutionary system,continuing development is needed just in order to maintain its fitness relativeto the systems it is co-evolving with." (based on a quote in LewisCarroll's Through the Looking Glass, inwhich the Red Queen tells Alice that "in this place, it takes all therunning you can do, to keep in the same place.")

Leigh Van Valen, “A New Evolutionary Law” in Evolutionary Theory(1973), p. 1-30.

A dozen years ago, in 1992, I wrote a book called Declineand Fall of the American Programmer, whichpredicted that U.S.-based computer programmers would suffer the fate of thedodo bird by the end of the decade. I didn't call it "outsourcing,"but I did identify India as the primary source of the long-term competitivethreat to our knowledge-based U.S. economic engine.

1992 now seems like a long, long time ago; and the world thatexisted then now seems like a galaxy far, far away. As it turned out,programmers did not go the way of thedodo bird as the decade came to a close; indeed, young college graduates withdegrees in English literature were negotiating six-figure salaries at dot-comcompanies, and demanding sports cars as a signing bonus. Fortunately, most ITprofessionals had long since forgotten the predictions I had made at thebeginning of the decade; those who did remember lost no opportunity to tell mehow dreadfully and fundamentally wrong I had been.

But now it seems that my prediction may have been simplypremature, not wrong; in response to a straightforward survey questionconducted by the Cutter Consortium, about the extent of outsourcing thathadtaken place between 2000 and 2004, the answers strongly indicated that offshoreoutsourcing has now become a mainstream phenomenon:

Figure 1.1:

Extent of offshore outsourcing in the IT industry, 2000-2004

(Copyright © 2004 by Cutter Consortium. Reprinted bypermission.)

As I begin writing this new book, Outsource?, unemployment in the computer industry has reachednew highs in the U.S., and U.S. employers are shifting tens of thousands ofinformation-technology (IT) jobs to countries like India, China, Russia, andthe Philippines. And while the current phenomenon is obviously driven by thehigh-tech recession of the early 2000's, there is a growing perception that itmay not be just a temporary "blip" that disappears when the economyfinally improves. Indeed, it may well be a permanent trend, and it mightpossibly lead to the "dodo bird" scenario that I warned about. In anycase, any American knowledge worker — whether in the computer industry, orseveral other industries we'll be discussing in this book — who hasn't beenhibernating in a cave for the past few years knows that outsourcing is here,and that it's growing.

Also, it doesn't take a rocket scientist to predict thatoffshore outsourcing is likely to cause morale problems. When we asked thisquestion, in a spring 2004 survey of approximately a hundred IT professionalsand managers, we got the following response1:

Figure 1.2:

Likely impact of offshore outsourcing on morale

(Copyright © 2004 by Cutter Consortium. Reprinted bypermission.)

Of course, the "dodo bird" scenario wassomewhat exaggerated even in 1992, and most pundits would argue that it'sexaggerated now. I don't seriously believe we'll see a U.S. economy with no computer programmers, or software engineers — atleast, not during my lifetime. Nor will we completely eliminate otherknowledge-based jobs like mortgage brokers, insurance claims adjusters, and taxprocessing specialists. The question is whether the future of the computerindustry and other knowledge-intensive industries will be similar to what we'veseen with the textile industry, the steel industry, the automobile industry,and other manufacturing industries. The U.S. auto industry, for example, hasnot disappeared; but its market share has dropped sharply over the past severaldecades, and this has had life-changing consequences for workers and consumers,as well as the hundreds of thousands of small companies who provide parts andservices to General Motors, Ford, and Chrysler. It's one thing for an industryto lose 10% of its market share and jobs; it's quite another thing to lose 50%or 75%.

And as we know, even the Big 3 auto companies are no longer"pure" American companies, building "pure" Americanproducts. Chrysler is owned by a German company, and both Ford and GeneralMotors have partnerships, joint ventures, and a dizzying array ofmanufacturing, assembly, and marketing operations all over the world2.In more and more industries, even the staunchest "America first!"company is beginning to realize that it must outsource some or all of itsoperations in order to remain competitive3.And if that is true for auto companies, textile companies, and agriculturalcompanies, it's also true for computer companies, and banks, and insurancecompanies.

The globalization phenomenon has also had significantconsequences for consumers, too: most would argue that they have more choicestoday than their parents did a generation ago; and both U.S.-made and foreigncars have much better quality than the clunkers we drove in the 60s and early70s. And for all the talk of protectionism, nobody seems to have any qualmsabout buying Japanese or Korean cars, and nobody seems to be boycottingWal-Martt's — where they can buy low-cost, good-enough clothing and householdgadgets from anywhere in the world, including Mexico, China, Indonesia, andother low-cost countries4.Interestingly, it may also have had a positive impact on the quality-conscious"professional" automobile workers and managers in the U.S.: they nolonger have to be embarrassed by shoddy workmanship in the companies theyrepresent. Wrenching as it may be to those immediately affected, perhaps thereis a "silver lining" to having the gene pool of workers reduced, sothat we're left with the highest-quality, most productive workers in keyindustries.

In the past, this offshore-outsourcing phenomenon involvedagriculture and assembly-line manufacturing; but the key trend in the 21stcentury is offshore outsourcing of "knowledge work." Softwaredevelopment was one of the first high-value-added examples of such outsourcing;keypunching and data-entry activities were among the labor-intensive,low-value-added examples, as far back as the 1960s and 1970s.

And while software development continues to be a significantexample of offshore outsourcing, it is by no means the only one. Because I hadspent my entire career in the IT industry, that's what I focused on in Declineand Fall of the American Programmer; but mywork during the past decade (including service on the Board of Directors of aU.S.-based outsourcing firm, and also on the Board of its Indian subsidiary)has given me insights into the offshore outsourcing phenomenon in such areas asmortgage-application processing, insurance-claim processing, call centers andhelp-desk operations, legal services (e.g., filing of patent applications),clinical research operations in the pharmaceutical industry, and many others.

Bottom line: knowledge work of all kinds is more and more likelyto be a global commodity, and companies striving to compete in a global economywill continue looking for opportunities to use the lowest-cost, highest-qualityproviders of products and services wherever they may be located.

Thus, Outsource? does notfocus on just the computer-industry phenomenon, though it continues to be oneof the more prominent examples because of recent coverage by BusinessWeek, the Wall Street Journal, and numerous other mainstream publications. Butwhile programmers tended to ignore the warnings I offered in the early 1990s, Iwant to ensure that lawyers and doctors and insurance professionals andwhite-collar workers of all kinds recognize the competitive issues we face inthe first few decades of the 21st century.

I also want to take a fresh look at the IT industry, for theactivities in the next few years are likely to go far beyond what I saw adecade ago. I'll also summarize the outsourcing activities in a number of otherkey industries, and I'll offer some predictions about likely trends over thenext decade. Of course, I can't guarantee that those predictions will becompletely accurate; but I've grown more humble in the past decade, and I'llavoid saying anything more about dodo birds.

Because of the steady stream of e-mail messages that I receivefrom unemployed programmers who seem to think my 1992 book provided me withsome silver-bullet solutions to their problems, and because of my experiencewith both vendors and purchasers of offshore products and services, I haveincluded several chapters that discuss the implications of this growing trendfor individuals, companies, and for government/society at large.

This is important because, as we are rapidly becoming aware, theoutsourcing phenomenon is now much broader than just software development —and while there may be some universally-applicable strategies to achieve acompetitive advantage across all industries, the details obviously differwidely from one industry to another. Also, there seems to be much more of asense of inevitability about offshore outsourcing than there was in the early1990s. In those days, the common reaction, especially from American computerprogrammers, was, "We don't think this is a real problem, but if there is a competitive threat, tell us what we have to do toprevent it from becoming serious."

Today, the common reaction is, "I'm seeing it happen allaround me, and I think my own job may be outsourced next month. Tell me what Ishould do to cope with this phenomenon." And as it turns out, there are anumber of strategies and initiatives that individual programmers — andindividual accountants, lawyers, help-desk personnel, and other knowledgeworkers whose jobs are being outsourced — can do. Some of the strategies arestraightforward and obvious; but some require some difficult choices anddecisions. Similarly, there are strategies and choices for knowledge-intensivebusinesses whose products and services are under competitive attack by lower-cost,higher-quality companies in other parts of the world.

Finally, there is the possibility of governmental action. Much ofthe discussion today, especially in the IT industry, revolves around thegovernment-mandated limits for so-called H-1B visas, which allow foreignworkers to carry out their work (which may or may not result in displacement ofhigher-cost American programmers) here in the U.S. — i.e.,"on-shore" rather than "off-shore". But I think it isnaïve to suggest that the offshore outsourcing problem can be eliminatedby simply eliminating such visas; in the extreme case, it will simplyaccelerate the existing trend towards offshore outsourcing — i.e., where thesoftware development work is shipped (via satellite links and the Internet) toIndia or China, and the results are shipped back to the customer in NorthAmerica.

But there are other options and strategies that I believegovernment could employ, at the local,state, and Federal level; greater investment in education, combined with reformof the public-school educational system, is one such option — along withinvestments to promote "lifelong education," especially among adultswho discover that the university training they received years ago is nowobsolete5.I am skeptical that any significant, effective, proactive policy will emergefrom the Federal government anytime soon; but a number of initiatives at thelocal level, and in various states around the country, give me some hope thatpositive things can be done toinvest wisely, and channel society's energies in a direction that will makelocal workers and companies more competitive.

Ultimately, though, this is not a book about political solutionsor recommended government policy. And while I do think there are rationalstrategies that corporate executives can follow to make their companies morecompetitive, the real focus of this book is on the individual.

After all, it has been individual computer programmers who have emailed me continually, ever since thepublication of Decline and Fall of the American Programmer. It's individual knowledge workers, far more oftenthan corporate executives, who run the risk of losing their jobs as a result ofthis global shift of products and services. And it's individuals, as severalcorrespondents have reminded me in recent months, who have to advise theirchildren what careers and professions they should follow — and the outcome of those choices will ultimately havea far more profound effect than a politician's modification of a visa quota.

One of the individuals who is faced with these issues is me: likeeveryone else reading this book, I too have to compete with hard-working,low-cost, high-quality knowledge workers all over the world. So, rest assuredthat everything you read in the chapters to follow is not a hodge-podge ofideas formulated in an ivory tower; I have to follow my own advice, or I toowill end up like the dodo bird.

1 The entiresurvey consisted of approximately 240 individuals; but for this question, weexcluded the responses from offshore outsourcing XE "offshore outsourcing"  vendors and other consulting firms.

2 In addition,Chrysler XE"Chrysler"  isalso outsourcing some of its IT and knowledge-based work. See"DaimlerChryslerXE "DaimlerChrysler" \t "See Chrysler"  signs multiyear outsourcing deal with EDS XE "EDS" ," by Linda Rosencrance XE "Rosencrance, Linda" , Computerworld, Apr 28, 2004. Available on the Internet at<www.computerworld.com/managementtopics/outsourcing/story/0,10801,92729,00.html?SKC=outsourcing-92729>.

3 Indeed, thishas led to some interesting lawsuits. In late May 2004, a California judgeordered a Portland, Oregon-based company called Leatherman Tool Group XE "Leatherman Tool Group"  to pay a fine of more than $13 million for falsely labeling itstools as "Made in USA," even though they included some foreigncomponents. The company indicated that it planned to appeal the ruling. See"Leatherman Loses Label Dispute," by Helen Jung XE "Jung, Helen" , The Oregonian, May 28, 2004. Also available on the Internet at<www.oregonlive.com/search/index.ssf?/base/business/108574550888130.

4 A colleagueof mine, Bob GlassXE "Glass, Robert" , remarked to me that Wal-Mart XE "Wal-Mart"  makes quite a point of not selling foreign goods. That may beso (and in any case, it was not intended as an insult or an accusation), but inany case, it appears that what Wal-Mart is more concerned about is avoidingrelationships with suppliers who use "sweatshop XE "sweatshop" " factories to producetheir goods. As Wal-Mart's web-site says (in the section on "SweatshopAllegations at www.walmartstores.com), "Wal-Mart strives to do businessonly with factories run legally and ethically. We continue to commit extensiveresources to making the Wal-Mart system one of the very best. We requiresuppliers to ensure that every factory conforms to local workplace laws andthat there is no illegal child or forced labor. Wal-Mart also works withseveral different outside monitoring firms to randomly inspect thousands ofthese factories each year to ensure compliance. In fact, we conduct more than300 factory inspections each week as part of our commitment…" It'salso interesting to note that Wal-Mart itself has gone international, startingin 1994; it now has stores in Puerto Rico XE "Puerto Rico" , Mexico XE "Mexico" , Canada XE "Canada" , Brazil XE "Brazil" , Germany XE "Germany" , Argentina XE "Argentina" , China XE "China" , South Korea XE "South Korea" , and England XE "England" .

5 See, forexample, the thoughtful commentary, "In a Global Economy, LifelongLearning is Crucial to U.S. Economic Growth," by John A. Challenger XE "Challenger, John" , Computerworld, Apr 9, 2004. Available on the Internet at<www.computerworld.com/careertopics/careers/story/0,10801,92371,00.html?SKC=outsourcing-92371>.

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Table of Contents

1 Introduction 1
2 Key factors driving outsourcing 7
3 Today's situation in it 33
4 Additional forms of outsourcing 61
5 Likely trends for the next decade 81
6 Implications for the individual 103
7 Implications for companies supplying knowledge-based services 145
8 Implications for companies buying knowledge-based products or services 165
9 Implications for government and society 183
10 Conclusion 221
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  • Anonymous

    Posted October 12, 2004

    better than I expected

    I started reading this book with no high expectations. Yourdon is best known (notorious?) for the loud and repeated claims about the Y2K crisis, prior to 2000. He was hilariously wrong, though he certainly did well out of consulting and convening conferences over it. So I anticipated more of the same puffery here. But gradually and grudingly, I raised my opinion of this book. There are no shrill polemics. No hysterical call to arms. Instead, you get a sober (and sombre) study of offshoring. Yourdon goes calmly through the driving forces. He points out that the ongoing improvements in computer hardware (Moore's Law) and communications show no signs of abating. It is these which have made offshoring economic to date. And if those trends continue, offshoring can become even more persuasive. Yourdon suggests that for you as an individual, try to quantify your productivity if you are an American information worker. He pointedly does not restrict his audience to IT. Then see if your productivity justifies your higher cost, relative to an offshore worker. If not, you should upgrade or even change professions. He makes a very cynical but cogent observation that if you do not quantify your own productivity, someone else might do it for you, like an offshore vendor, who will not have your interests at heart. For an American company, Yourdon recommends a focus on Business Process Engineering. The book is thankfully short on acronyms and buzzwords. But it does advocate trying a radical improvement in your workflow, in order to stave off offshoring.

    1 out of 1 people found this review helpful.

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