Will Offshoring Really Be an (American) Political Football?

Those of you who listened to Obama’s State of the Union speech last week might have caught three references to the evils of outsourcing. And if you’ve taken a gander at Bain Capital’s website, you’ll quickly ascertain that the source of Romney’s wealth is outsourcing. Moving onto Gingrich, who blames the North American Free Trade Agreement for outsourcing, well, it’s pretty apparent that he’ll be outsourcing jobs to the moon. Where will the shared services and outsourcing industry come out, on the other side of November?

Call me a cynic, but I don’t see outsourcing as much more that a series of sound bytes in this year’s US election. Certainly, it’s a fashionable word, crystallizing the electorate’s dissatisfaction with the current state of affairs – but other than a rallying cry, I don’t predict a serious volte-face on the trajectory of adoption.

Why is “outsourcing “ fundamentally more bark than bite?

First, outsourcing is engrained as a business model. Whether it’s used solely as a cost reduction tool, or as part of a broader transformation initiative, moving jobs offshore is not going to stop as a result of political diatribes. Sure, if the stories are true, C-suite execs are being leaned on, and will naturally think twice about their options this year in light of other potential legislation, but stopping the train is highly unlikely

Second, blaming outsourcing for the state of the American economy is a bit disingenuous. If I were Obama, Romney, Gingrich et al, I’d spend much more time worrying about the hollowing out of the American workforce. Reductions in force—whether prompted by the recession, globalization, technology or other catalysts—have hit middle management hard, rendering the American workforces less competitive. We are now in a vicious cycle, moving jobs offshore because no one’s left in the U.S. to manage them.

Third, globalization is here to stay. Even before Tom Friedman declared that the world was flat, companies, big and small, were looking to markets beyond their borders. Protectionism is not feasible for any economy. Romney, in 2006, admitted as much by saying that although jobs were moving overseas, the trend built demand for more American goods and services.

Fourth, the politicos really don’t understand what drives outsourcing, how it works, or what the value proposition actually is. Heck, if they did, they’d understand that the operative term is “offshoring” rather that “outsourcing”; and that access to talent will eventually eclipse the cost benefits.

So the next time you hear a candidate being called a “job cremator” as opposed to “job creator”, consider it just rhetorical political football. While the movement to “offshore” may slow this year, it’s most likely just part of the now familiar gridlock that affects us all, every few years.

Deborah Kops,

Managing Principal,

Sourcing Change

www.sourcingchange.com

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I declare this year “The Year of the Shared Services Center.”

There’s a phenomenon going on that the sourcing numerologists are just starting to surface—a trend towards pursuing shared services as a first sourcing step, as opposed to diving into the proverbial deep end with outsourcing. Why now, when outsourcing is seemingly a quicker way to get to value, deploying someone else’s capital, and the providers are still doing deals in order to get to scale?

Think back to when we emerged out of Global Recession Part One. Global companies decided that it was time to give the white-shoe-and-accounting-based firms a fair bit of dosh to help them design operating models that function well in the “new normal.”  So, as a result of 18 or so months of consulting bills, the answer seems to follow a pattern—transform by moving to shared services, then when every process is up to scratch, think about sending those improved, rules-based processes to an outsourcer that can shave off a few percentage points of the cost and is willing to enter into transactions-based pricing.

Why? It’s doubtful that most companies are chomping at the bit to spend their hoarded cash developing centers in Kuala Lumpur, Krakow or even Kalamazoo. Or that some guy or gal proximate to the C-suite is just dying to make their mark by setting up a global network of shared services centers. Could it just be that the shared services model is the elixir of choice on the part of management consultants who are acutely aware that if they suggest outsourcing as a first step, all that luscious potential for a year or two of transformative consulting hours will go up in smoke?

Or is this trend more deeply entrenched in the fact that, finally, organizations are admitting that  outsourcing is not necessarily a one-size-fits-all for business transformation. That’s to say that outsourcing’s not a good thing. Frankly, without outsourcing and the highly skilled outsourcers, it’s doubtful that we’d have a sourcing industry of the breadth and depth that we have today; that companies would be as comfortable globalizing work as they have been; or that we’d have an emerging leadership class of fairly sophisticated managers who know how to lift, shift and fix – and all stripes of transformation in between. But with almost 20 years of business process outsourcing under our belts, it’s fair to say that buyers are now smart enough—and comfortable enough—to combine solutions in structures that are best suited to their organizations and what they want to achieve.

Sourcing leaders now know that understanding context is critical to developing the right business platform. Context suggests to leaders where the business has to control processes directly, where cultural understanding and flexibility dictates an internal shared services solution, and where outsourcing is the most efficient and expedient tool.

Perhaps it’s this better command of the solutions in context that’s driving shared services.

Deborah Kops,

Managing Principal,

Sourcing Change

www.sourcingchange.com

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“Acme Outsourcing Provider…we’re no worse than anyone else!”

Not too long ago I was speaking with an outsourcing leader who was trying out his latest and greatest corporate message on me, extolling the virtues of his value proposition. “We can take out 20 percent of cost year one,” he expounded. “That’s pretty valuable to a (CFO)/(business leader)/(HR leader). Clients should be beating a pathway to our door.”
 “Cost savings are sooo yesterday,” I quickly interjected. “What’s so special about that?” And his face fell to the floor.

Now I try not to make it a habit of deflating someone’s balloons, but in the outsourcing world, cost savings are no more than table stakes. Business process improvement is now a commodity with definable benefits and measures—cost savings of X, efficiency creation of Y, SLA adherence of Z, for about every function and process. And outsourcing is not the only key to business process nirvana—shared services, outsourcing, and internal reengineering can all deliver cost savings. Re-engineering processes—it’s on ongoing task in most organizations. Labor arbitrage—an established approach. Smarter technology—open the purse strings and implement. Move to the cloud---what’s the big deal? 

So what’s an outsourcing provider to do to stand out in the crowd?

Today, providers need to raise their game just to stay in place, finding their “extra” – unique value, skill, contribution, commitment, or way of doing business – that sets them apart. Go to any outsourcer’s site and you’ll see the same menu of benefit: cost savings (naturally), client-centric, operations excellence, domain specialists, business value creators … and don’t forget partnership approach or end-to-end delivery, with a side dish of innovation and transformation. In short, our market is overflowing with services that are expected, or dare I say, adequate. What client would not expect operations excellence from a provider? Or that they wouldn’t have a grasp of their business challenges? Or be client focused? – after all, it’s a service business. What’s unique or amazing about any part of this value proposition?

For those of you who have time on your hands, read the book Tough Cookies, by Kathy Cloniger, the woman who made the mainstream Girl Scouts of America cool again. She argues that if most organizations were honest with themselves, their mission statements would read “Acme Widgets: We’re no worse than anybody else.”

So what might a provider do to stand out in the crowd? Most provider value propositions are designed to be safe, playing “me-too” with regards to what the competition are saying, rather than breaking any eggs. How would buyers react if suddenly a provider said that its value proposition was to improve processes, get to steady-state, then move them back to buyers, who are deathly frightened about losing tacit knowledge? Or if a provider actually was willing to take on some level of reporting or compliance risk? Or promised no change orders unless the work increased by a quantum?

Buyers, how would you like to see providers raise their games? Add a comment!

Deborah Kops,

Managing Principal,

Sourcing Change

www.sourcingchange.com

Read more from Deborah Kops

There are two Dans, as far as I’m concerned. One is Brown and the other is Pink. Brown is good for spine-tingling action; Pink is great to make you think. I am talking, of course, about Daniel H. Pink, author of four provocative books about the changing world of work, including A Whole New Mind, and Drive.

Recently, someone sent me a link to an article he wrote some time ago for Wired magazine, in which he makes the case for the “Pissed Off Programmers” who are watching their jobs disappear to India, and then find themselves at the wrong end of the employment line. Waving the flag for these “POPs” is New Jersey State Senator Shirley K. Turner, representing the 15th District. Incensed by the fact that ¬the company administering electronic benefits cards for the state's welfare recipients was moving its customer service jobs out of the US to India, and that taxpayer dollars were funding the migration, she led a movement to ban the outsourcing of state contracts to foreign countries. Though her bill was subsequently waylaid by pressure groups, Senator Turner became a focus for the anti-outsourcing brigade.

All that happened roughly 10 years ago, but given the pain of the current recession and high domestic unemployment rates the issue is as live and kicking as it ever was. Pink argues, and it is as relevant an argument today as it ever was, that protectionism of the sort espoused by Senator Turner just doesn’t align with traditional American business philosophy – which has always been based on a belief in free markets and the ability to adapt to change.

What he highlights so well is that markets like the US have always had to adapt to change – our modern age has witnessed a move from agriculture, through factory work, to what he calls the “knowledge work” of today. And it is precisely these that are being suctioned off to the highly [highly!] educated, skilled, trained, and ambitious –– not to mention less costly --  labor pools of India and the like. To quote Pink:

A century ago, 40 percent of Americans worked on farms. Today, the farm sector employs about 3 percent of our workforce. But our agriculture economy still outproduces all but two countries. Fifty years ago, most of the US labor force worked in factories. Today, only about 14 percent is in manufacturing. But we've still got the largest manufacturing economy in the world - worth about $1.9 trillion in 2002. We've seen this movie before - and it's always had a happy ending.

What makes this latest upheaval so disorienting for Americans is its speed. Agriculture jobs provided decent livelihoods for at least 80 years before the rules changed and working in the factory became the norm. Those industrial jobs endured for some 40 years before the twin pressures of cheap competition overseas and labor-saving automation at home rewrote the rules again. IT jobs - the kind of high-skill knowledge work that was supposed to be our future - are facing the same sort of realignment after only 20 years or so. The upheaval is occurring not across generations, but within individual careers. The rules are being rewritten while people are still playing the game. And that seems unjust.

To stem your self against this tide would seem foolish, perhaps even displaying double standards. The hope, however, lies in the “what’s next.”  And what is next, says Pink, is the age of innovation. Namely:

The rest of us, like it or not, will have to adjust. The hints about how to make this adjustment are evident at Patni. As I meet programmers and executives, I hear lots of talk about quality and focus and ISO and CMM certifications and getting the details right. But never - not once - does anybody mention innovation, creativity, or changing the world. Again, it reminds me of Japan in the '80s - dedicated to continuous improvement but often at the expense of bolder leaps of possibility.

And therein lies the opportunity for Americans. It's inevitable that certain things - fabrication, maintenance, testing, upgrades, and other routine knowledge work - will be done overseas. But that leaves plenty for us to do. After all, before these Indian programmers have something to fabricate, maintain, test, or upgrade, that something first must be imagined and invented. And these creations must be explained to customers and marketed to suppliers and entered into the swirl of commerce in a fashion that people notice, all of which require aptitudes that are more difficult to outsource - imagination, empathy, and the ability to forge relationships.

After a week in India, it seems clear that the white-collar jobs with any lasting potential in the US won't be classically high tech. Instead, they'll be high concept and high touch.

Innovation says Pink, will be essential.  And he leaves us with a battle cry for the future:
AMERICA DISCOVERS. THE WORLD DELIVERS.

See the full article here:
http://www.wired.com/wired/archive/12.02/india_pr.html

Barbara Hodge Editor SSON

Here’s some data you really need to know about: IBM’s Plant Location International has just released its report on foreign investment across the globe. Translated, that means who is setting up centers, and where? And how big are these centers? Some really mind-blowing stats to quote at your next executive council meeting. That’s all for now – short and sweet.

Barbara Hodge Editor SSON