(February 26, 2004) - The move towards outsourcing, whether domestic or international, is a logical consequence of the continuing advance of technology. One way or another, technology wants to cost less, serve more customers, be more transparent. Technical leadership has this ugly underbelly: technology is not a competitive advantage, it simply offers a time differential.

The movement of technology from high cost initial suppliers to lower cost providers is as old as the weapons business. One group gains an advantage in time by investing in technology, the other group copies it quickly at lower costs because the hard work is done. Technology always wants to become a commodity.

There are only two paths available to companies, cultures and organizations: hold on tight to the technology or set it free. Holding on tight always produces aggressive competition and the risk of major loss (witness the automotive industry in the late 70s and early 80s). Setting it free (or managing its spread) carries political risk. It's one thing to lose business to a competitor. It's very different to move jobs to lower cost providers.

It takes no insight to hold on to your advantage. Keep doing the same things until someone catches up. The risk in trying to contain the advantage is that the competition will leapfrog by being forced to make investments in technology or process improvement.

Outsourcing is a strategy of colonization. It requires infrastructure to manage what was once done in-house. It requires planning for the eventual and predictable end of the arrangement. It forces the outsourcing organization to sharpen and refine its managerial skillset. The risks include being held hostage by the provider, billing discrepancies, and quantifying outcomes that have never been quantified. There is an additional risk...outsourcing functions that are so strategic that they should never be done outside of the organization's walls.

The most dire forecasts suggest that the current round of technical outsourcing will move 3 Million jobs overseas during the coming decade. In a robust economy, that's a fraction of the jobs created in a single year. It's a bit more disconcerting when, in today's limp economy, that starts to look like a couple of years worth of job growth. The dynamics, however, remain the same, shepherd them out carefully or risk losing them abruptly.

Creative destruction of jobs is the very essence of capitalism. We're just talking about timing and cash flow. Outsourcing guarantees a longer term. It's a fiscally conservative approach to inevitable conclusions.

John Sumser

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