Outsourcing: Is this the end?
Outsourcing. Just a couple of decades ago, it was a term that was only regularly used by high level consultants. And offshore was where you hid money from the government, not where you performed financial research. Over the intervening years, the average America, or European, has become very familiar with these terms. Outsourcing was initially a measured, process driven way to improve profitability and save faltering business functions.
But over time it became an easy, and very temporary, way to improve profits without a lot of deep thinking. Of course that second kind of outsourcing, let’s call it complete outsourcing, has been the culprit in almost every failed and destructive outsourcing program. Has poor performance managed to sully the name of outsourcing so badly that it’s doomed to fade away? Let’s read on and find out!
In the [past few decades, outsourcing has moved from being an almost academic exercise in re-engineering to the default solution when a manager doesn’t understand how to manage their functions. There are still excellent managers that ask the right questions, and know how to review the answers. However, far more mangers skip past these questions and use an out of the box solution and poorly fitting solution that ultimately undermines a well-functioning operation. The wave of outsourced businesses that are returning to the US are just one sign of how badly the worst of these programs have operated.
Back in 2010, Bloomberg BusinessNews warned about the end of outsourcing by 2015, and in 2014 Gartner similarly stated that outsourcing was over. Of course, in 2014 outsourcing in Europe and in the US continue to grow. Does this mean that the nay-sayers are wrong and outsourcing… even bad outsourcing… will still continue to grow? I don’t think so. Outsourcing today is not the same as outsourcing in the 80s or the 90s. Today, more than ever, outsourcing can be far more effective and less destructive than in the past.
Back in the 80s when General Electric and McKenzie Consulting first asked the question, “Can a country like India perform high-quality knowledge work,” it revolutionized the idea of outsourcing. Outsourcing exited before India. Earlier knowledge outsourcing meant sending work to another state with lower costs, but those lower costs could easily be raised by new processes and expenses, or it could fell prey to inconsistent and absentee management. When offshore came along, the cost of operation was so much lower that even badly planned offshoring could absorb the mistakes and still show a significantly lower cost of operation. At least for a while.
Perhaps mistakes were made in the FX exchange rate, or management got sloppy, or when the last of the onshore team left, some vital element was lost in the “secret sauce”. Whatever happened, managing a mature outsourced operation became more of a challenge than the exciting early days, and little by little the program lost value. Today, many programs that started off with problems or that developed problems over time, or simply ceased to be a priority, became examples of failed outsourcing. Many outsourcers simply want to change the name, but keep working the same way.
In reality, outsourcing is changing. There was a day when American’s asked if a product was made in America. Today, partially because of the prevalence of outsourcing, we ask, “How much of it was made in America?” Still, there is a huge wave of work that is coming back to America. Why? Because even with the best technology and solid management, it does take more effort to manage at a distance. The structure for this management and the costs, are often forgotten and the process not understood. Even a program that makes sense offshore and meets all productivity requirements will eventually fail if it does not continually find more improvements.
Take America’s oldest family-owned firm, Zildjain. Zildjain is an American firm that is nearly 400 years old, manufactures musical cymbals, and dominates the market. And Zildjain has never outsourced, and never laid-off staff. They’ve managed this incredible record by continually improving and automating their processes, and continually retraining workers so that they can constantly take on more sophisticated tasks. Zildjain firmly believes that when a machine can do the job of a human being, it’s time to retrain the human beings and let the machine do the work. And their success proves that this is a wining model.
Today, we can expect that automation will be a big part of the return of work to America. A new generation of robots and swarms of drones will initiate a new round of work re-engineering throughout the American economy. Some firms will manage the robots themselves, just as major corporations manage their own networks. But once robotic automation becomes as common as computer automation, the management of robots will be outsourced to firms that are better able to manage their operations and the development of a robotic workforce.
Over the past couple of decades outsourcing has expanded across the globe, and been enhanced through the use of remote technology and telecommunications. Outsourcing may be called by many different names, but the idea that there are other people, managers and locations outside of your firm that can do your work better, faster and for a better price is not going away. We are now connected electronically around the world, and robots are now moving out into the physical world. No one company, no matter how big, can perform every function better than every other corporation in the world. As long as that’s true, Outsourcing isn’\'t going to go away!
But over time it became an easy, and very temporary, way to improve profits without a lot of deep thinking. Of course that second kind of outsourcing, let’s call it complete outsourcing, has been the culprit in almost every failed and destructive outsourcing program. Has poor performance managed to sully the name of outsourcing so badly that it’s doomed to fade away? Let’s read on and find out!
In the [past few decades, outsourcing has moved from being an almost academic exercise in re-engineering to the default solution when a manager doesn’t understand how to manage their functions. There are still excellent managers that ask the right questions, and know how to review the answers. However, far more mangers skip past these questions and use an out of the box solution and poorly fitting solution that ultimately undermines a well-functioning operation. The wave of outsourced businesses that are returning to the US are just one sign of how badly the worst of these programs have operated.
Back in 2010, Bloomberg BusinessNews warned about the end of outsourcing by 2015, and in 2014 Gartner similarly stated that outsourcing was over. Of course, in 2014 outsourcing in Europe and in the US continue to grow. Does this mean that the nay-sayers are wrong and outsourcing… even bad outsourcing… will still continue to grow? I don’t think so. Outsourcing today is not the same as outsourcing in the 80s or the 90s. Today, more than ever, outsourcing can be far more effective and less destructive than in the past.
Back in the 80s when General Electric and McKenzie Consulting first asked the question, “Can a country like India perform high-quality knowledge work,” it revolutionized the idea of outsourcing. Outsourcing exited before India. Earlier knowledge outsourcing meant sending work to another state with lower costs, but those lower costs could easily be raised by new processes and expenses, or it could fell prey to inconsistent and absentee management. When offshore came along, the cost of operation was so much lower that even badly planned offshoring could absorb the mistakes and still show a significantly lower cost of operation. At least for a while.
Perhaps mistakes were made in the FX exchange rate, or management got sloppy, or when the last of the onshore team left, some vital element was lost in the “secret sauce”. Whatever happened, managing a mature outsourced operation became more of a challenge than the exciting early days, and little by little the program lost value. Today, many programs that started off with problems or that developed problems over time, or simply ceased to be a priority, became examples of failed outsourcing. Many outsourcers simply want to change the name, but keep working the same way.
In reality, outsourcing is changing. There was a day when American’s asked if a product was made in America. Today, partially because of the prevalence of outsourcing, we ask, “How much of it was made in America?” Still, there is a huge wave of work that is coming back to America. Why? Because even with the best technology and solid management, it does take more effort to manage at a distance. The structure for this management and the costs, are often forgotten and the process not understood. Even a program that makes sense offshore and meets all productivity requirements will eventually fail if it does not continually find more improvements.
Take America’s oldest family-owned firm, Zildjain. Zildjain is an American firm that is nearly 400 years old, manufactures musical cymbals, and dominates the market. And Zildjain has never outsourced, and never laid-off staff. They’ve managed this incredible record by continually improving and automating their processes, and continually retraining workers so that they can constantly take on more sophisticated tasks. Zildjain firmly believes that when a machine can do the job of a human being, it’s time to retrain the human beings and let the machine do the work. And their success proves that this is a wining model.
Today, we can expect that automation will be a big part of the return of work to America. A new generation of robots and swarms of drones will initiate a new round of work re-engineering throughout the American economy. Some firms will manage the robots themselves, just as major corporations manage their own networks. But once robotic automation becomes as common as computer automation, the management of robots will be outsourced to firms that are better able to manage their operations and the development of a robotic workforce.
Over the past couple of decades outsourcing has expanded across the globe, and been enhanced through the use of remote technology and telecommunications. Outsourcing may be called by many different names, but the idea that there are other people, managers and locations outside of your firm that can do your work better, faster and for a better price is not going away. We are now connected electronically around the world, and robots are now moving out into the physical world. No one company, no matter how big, can perform every function better than every other corporation in the world. As long as that’s true, Outsourcing isn’\'t going to go away!
Source...