Outsourcing

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.

Outsourcing's Agenda

I've blogged before (and so have others) about the concept of outsourcing. It's been said that Ross Perot invented the outsourcing industry with his company - Electronic Data Systems. In the past few decades it has grown to an industry. And outsourcing now encompasses much more than just running mainframe computers or computer networks. In fact, just about anything can be outsourced these days.

Perhaps the question most of us blog about is whether or not just about anything should be outsourced. What are the political issues? What are the moral issues? What are the business issues? Do we have the right issues in each category? There are many questions. At the same time, there are many experts who will sell you their advice to help you sort out the issues.

Oddly enough, I'm a fan of outsourcing. But I see it as a double-edged sword. It seems to cross boundaries (as most things in life do) and become problematic. What's good becomes bad. How do we know this? Well, the surest signs are when ordinary events (transactions) seem to have extraordinary significance. In other words, seemingly ordinary decisions seem to get made with decision criteria that is may not so ordinary, maybe no so expected. Perhaps it might be a seemingly ordinary decision that gets made --- with rather unfortunate views.

Two such decisions came about this week. First, we saw that Xerox announced it will spend about $100 million paying an Indian company to manage its data centers. (http://www.reuters.com/article/innovationNews/idUSTRE5342R120090405) Xerox laid off more than 3,000 people last year, slashing American jobs. Now they're busy securing jobs in India ... while Americans suffer the most devastating economy in our generation. What made this incredibly newsworthy was Xerox' timing. It couldn't have been worse!

Second, we say that Sallie Mae (a company that the U.S. federal government created and then spun off) is pulling back jobs from overseas. (http://uk.reuters.com/article/economyNews/idUKTRE5352TH20090406) Sallie Mae's operating company will create about 2,000 American jobs by pulling jobs from Mexico, Philippines and India. What made this story so newsworthy was Sallie Mae's alleged motive. It is said that Sallie Mae is trying to find favor with the U.S. federal government (its foreign parent) as it seeks to buy troubled assets at deep discounts (funded by American taxpayers).

Do you have that bad taste in your mouth? Offshore outsourcing has always tasted this way. It's always slashed American jobs to fund American greed. Stay tuned for more as the truth about offshore outsourcing continues to be revealed. Company after American company has drunk the Kool Aid on this one, folks. The best names in the business, from all the blue chip companies to the mid sized manufacturers --- have been busy shipping jobs overseas so they won't have to pay anyone in America a living wage. Now that our economy is crashing and burning and no American jobs are to be found --- we shall find out the real impact.

Can the American economy really recover when the jobs are all offshore? What do you think? And what of these companies -- most of which are falling on their swords -- that outsourced to offshore locations "in order to remain competitive?" What do you think? Do you suppose they really are more competitive?