As stated regularly in my other blog entries the world of outsourcing is becoming more mature year on year. There is a vast array of process that can be outsourced, everything from lower skilled jobs in call centres to risk analytics in banking. From BPO (Business Process Outsourcing) to KPO (Knowledge Process Outsourcing) there is nothing sacred in the world of global economics. So where does that leave today’s youth? What subjects should they study that can never be outsourced? To determine this list we must first look at where outsourcing has come from and where it could possibly lead.

Outsourcing has been around for as long as people have been in business. It simply means letting someone else do something within your business if they are not actually part of it. The first time a debt collector was used to settle a debt rather than the lender, this was outsourcing. The debt collector took a cut of the total amount and became a supplier of services.

The explosion of outsourcing happened in the mid to late nineties with the Y2K projects. These repeatable, easy to describe development tasks were shipped out initially to India as the talent pool and infrastructure made it cost effective and ensured this massive project was completed on time. In this case all that was required was a scaling up of the workforce to guarantee success. From that time, a number of close relationships were forged between large western organisation and Indian service providers. It was then realised that the scope of services could be expanded. Of course there were a number of trail blazing organisations already ahead of the curve but most people will agree this was a pivotal time for outsourcing.

Things have moved from there. The array of services on offer is staggering, with more being added all the time. It is difficult for people in the industry to keep up with the offerings. Niche service providers are becoming even more niche. From companies that will look after your ranking in search engines to a recent company I came across that owned a 3D imaging system contracted to model complex structural units in airplane engines and provide measurements to manufacturing companies. The move from low skilled labour to high experience skilled professionals is continuing. So, what course should someone study if they want to have a well paid job with some guarantee it won’t be outsourced to somewhere of lower cost.

There are obviously two types of career paths, corporate and non-corporate. If students want to follow the corporate career path there will be a reduced number of career opportunities with the increase of outsourcing. A few years ago there would have been a long list of jobs that fitted into this category. Let’s look at a few of these.

Middle management still perceive of themselves as beyond the grasp of outsourcing, although, with the trend of matrix management, often managers don’t have to actually understand the work being done, orchestration of the individual work items is all that is required. In fact many conmsultancies already achieve this by placing by placing long term consultants into middle management roles. The ramp up costs for new managers can be excessive but really good consultant managers can hit the ground running and be effective in a manner of weeks.

Upper management already have the concept of non executive directors, which is essentially bringing in external expertise, but the top level executive directors, in charge of strategy in a business unit need explicit knowledge that can not be outsourced. That doesn’t help today’s students, what degree do they chose to get to those stratospheric levels.

The one thing many students have in their favour is the tenant that companies should not outsource their core. Therefore there will always be some jobs for all graduates. The main issue is that there will be considerably less of the outsourceable core skills. As the majority of companies send these jobs to external vendors.

Non-corporate skills so far have remained outside.

So what actual courses should be studied? If today’s student, if thinking about a corporate career perhaps the managerial style courses rather than courses which could be seen as core outsourcing skills would be suited best. The increasing move to global sourcing will put pressures on today’s workforce that are unknown to previous generations of students.

In recent article from Newsfactor it reported that Dell was planning to sell it factories to contract manufacturers round the globe. This re-focusing on core is a classic of outsourcing. Dell obviously doesn’t see manufacturing as a core function of the company and is looking to move it to a company that treats it as its core. This will free up capital and make the company more flexible in its approach getting hardware to consumers. Dell has recently lost its top spot in the market and, in these difficult times is using outsourcing as a mechanism of transformational change within the company.

The article then goes on to point out that HP (the worlds no. 1 maker of computers) has already done this.

During recession perhaps outsourcing should be considered more often as a way for companies not only to whether the storm but to thrive.

Click here to read the full article

Innovation has always been a top buzz word of outsourcing, often mentioned but rarely achieved. When outsourcing was in its infancy everyone perceived that innovation was just another deliverable to be defined in the outsource contract. When it was never actually delivered upon the clients blamed he vendors without asking themselves tough questions. If innovation is to be fostered by clients internally, management must set aside resources, perhaps the most valuable being their own time. Without this focus the status quo will continue. Clients are now realising that the same is true of outsourcing vendors.

Innovation can be talked about but if you ever want to achieve it there are a number of things that must happen. Many of these have been discussed in previous blogs but in summary. Sharing of any profits should be set up in ways that encourage vendor innovation. Resource should be set aside and specifically earmarked for innovation. Risk taking should be encouraged as innovation is inherently risky and finally, the right people must be on the projects, people that see options to innovate.

Get these factor right and there is a chance that innovation will follow. The next step is incorporating innovation into the day to day running of the project. This could mean fundamental changes to operational procedures which have to be transitioned towards, much in the same way that work was transitioned to the vendor in the first place. Even the smallest innovation will probably require some sort of operational change. Operational change can often mean governance change which will require executive signoff.

All these things mean that change costs money. This then begs the question. Is innovation worth it? Of course ROI projections will have been done to ensure that any innovation introduced does not loose money but the innovation effort as a whole must be justified. Perhaps innovation is not required in all cases. Perhaps managing the relationship and maintaining SLAs is enough. Perhaps clients should be steered away from innovation in some cases.

I am not arguing that innovation is unnecessary all the time. Often it is highly desired and both parties should continue to strive for it. what I am saying is that innovation doesn’t belong in some contracts and should be removed from the expectations of senior executives. The overall cost of innovation may not be something an organisation is ready to pay or experienced enough to handle.

In the first generation of outsourcing contracts this term was a bit of an oxymoron. If it was mentioned at all in was purely as a side note in the contract. Neither party knew how to, nor planned on delivering this aim, but the lack of achieving it is still mentioned as a contributing factor in the dissatisfaction of many executives within the client. Things are getting slightly better in some of the more forward thinking relationships but there is much still to do before both parties can truly deliver on this aim.

Some of the problems are in the pricing structures in any contract. Innovation costs money it is often expected that the vendor will foot the bill. What is even worse is that there are clauses that state that any savings in innovation will be shared between the client and the vendor. So, not only will the vendor pay for it, but they will share any rewards. Innovation in inherently risky so if the vendor has to fund it and there is a chance it won't work and their margins will be further reduced for no compensation. As you can see this is not attractive for the vendor and so most didn't actually put any effort into innovation. If any happened it was more as a consequence of changes in the operating norm during the lifetime of the contract. These could be technology or infrastructure improvements brought about by a requirement to upgrade to the latest version of a particular piece of software.

To actually make innovation work, there are a few options. Assign a certain proportion of the cost of the project to innovation. This innovation budget will then be spent in agreement with both parties towards the benefit of the project as a whole. The vendor will actually have money to work with and the client will have a sense of ownership of any work which is undertaken. It could be the vendor's responsibility to identify and propose areas of innovation investment as they are closer to the day to day running of the project. An alternate benefit is to have the vendor pay for it, but they see all the rewards. In other words, any cost savings or efficiencies as a consequence of the innovation will not reduce the costs to the client.

There is an added benefit to innovation which is often overlooked and that is staff retention in the vendor. Attrition in vendors is often a massive issue, especially in tier 1 markets like India. If staff have an opportunity through innovation to learn new skills or participate in innovative but possibly risky projects then their interest level will be retained and there is more chance of them staying for longer. This is of course a benefit to both the client in that the people delivering the project are retained and the level of service maintained and a benefit to the vendor as they have less cost in continuous training for new members of staff.

Both of these options listed above have to actually make it into the contract. As long as the contracts only mention innovation without actually explaining how it is to be delivered on executives will continue to be disappointed with the results.

In a recent article from Alley Insider the author questions whether the recent deal in which Yahoo will outsourcing its Ads to Google. The article questions whether this 2 week test is actually illegal and does this matter in the context of the Microsoft bid for Yahoo. There is no conclusion to the article but it does raise some interesting thoughts about the timing of the deal and Yahoo’s efforts to increase their value in the eyes of Microsoft.

If this is only a ploy then it demonstrates very directly that the correct outsource deal can improve the profitability and market impression of an organisation extremely swiftly.

The full article can be read here