Search This Blog

Tuesday, June 08, 2010


There is common trend in U.S. businesses known as outsourcing. Actually Ross Perot invented it with the founding of EDS several decades ago. It's where companies hand critical functions - and the employees that do them - off to other companies to handle on their behalf. It's been a good business for decades and has always been well respected.

But in recent years, things have changed. Much of the outsourcing has turned to third world countries. So instead of taking the function and the employees that perform the function, the outsourcer just takes the function. The employees that performed the function are then fired. What's happened in the U.S. in recent years is that so many of them have been fired there's been vast unemployment and under employment. Said differently, the U.S. economy hasn't been robust enough to be able to withstand this massive loss of jobs.

Given this negative effect on our society, a lot of people have come to hate outsourcing. In, the name has changed from outsourcing to "offshoring." And the people who are the most bitter and angry about it are typically (and not surprisingly) the ones who've seen their own jobs shipped offshore. They may be manufacturing jobs, technology jobs, call center jobs or even sales or accounting jobs. In fact, there are few, if any jobs, that are really not vulnerable to the offshoring move. It's a simple matter of economics in most cases. But the broader impacts (beyond the specific deals) are undeniable.

Statistics show some sobering realities for the American people. For example, by 2007, this offshoring movement had taken at least 10% of all service jobs to China or India. Approximately 5 million manufacturing jobs had been moved to China, India or other third world (or NAFTA) countries. Americans have found an apparent love affair with foreign cars. In the process, GM has closed dozen of plants, laid of tens of thousands of workers - and filed bankruptcy. Chrysler filed suit. Ford followed suit - but stopped just short of the bankruptcy.

With trade deficits, national debt, consumer debt, personal bankruptcies, unemployment and state and federal government operating deficits at record and historic highs, the news continues to be more sobering. America's greatest manufacturing companies are no more. The cars are made in Asia. The electronics are made in Asia. The clothes are made in Asia and Latin America.

So ... is outsourcing bad for America? Is this concept of offshoring ruining our country? To be honest, I'm not smart enough to say one way or the other - at least with any sense of confidence. But I do know this ... having worked in the outsourcing industry for a good many years, I have seen its value.

Outsourcing, when done right, builds companies and communities. Outsourcing has the power to transform and create extraordinary value (versus simply incremental or marginal improvement in costs). It can be a powerful change agent for good. It can facilitate - even nurture - innovation.

On the other hand, done wrong - or for the wrong reasons, outsourcing can be destructive. Simply moving things offshore doesn't inherently make them better. In fact, if you take something that's stupid or mediocre and move it to India - it will just be stupid and mediocre in India.

Unfortunately, many executives who are making the outsourcing differences don't know this simple truth. And because they don't know, they make the decisions with the wrong criteria. They often get nothing more than some labor cost arbitrage ... and they wonder why it doesn't feel better than it does. They tend to be underwhelmed with the results.

I saw an advertisement on TV this week that one of our national networks is rolling out a fall sitcom called Outsourced. The previews seem to indicate that it will be a situation comedy which pokes fun of Indian outsourcing (among other things). Frankly, this worries me a bit. It may suggest that our culture has lost site of the fact that outsourcing has been a legitimate and honorable business for several decades. And it may indicate that in our cynical view - expressed from our pain - we are ready to throw the baby out with the bath water.

I hope that's not the case.

No comments:

Post a Comment