Wednesday, March 28, 2007

Outsourcing Will Be Replaced by Networks

“Ram” Ramadorai is the CEO of Tata Consultancy Services, an Indian information technology company with revenues exceeding $3 billion per year. Tata is the biggest IT services company in India, and as such it is one of those companies that Lou Dobbs regularly rails against: it’s a business that offers information systems, business process, infrastructure and engineering services to corporate customers for cheaper rates than do comparable U.S. firms like IBM, HP and Oracle. Therefore, we should view Tata with deep suspicion, for as we all know, Indian outsourcing businesses are nasty, evil, American-job-sucking monsters.Or are they? In a recent keynote speech to the World Outsourcing Summit sponsored by International Association of Outsourcing Professionals, I argued that in the future, terms like “outsourcing” and “offshoring” will become increasingly irrelevant. These terms assume a longstanding stereotype-- that nearly all the work of any company occurs within four organizational walls located within one country, with little bits and pieces of routine work occasionally (and grudgingly) being farmed out for dirt cheap rates to organizations in other (usually developing) countries. That stereotype is dying, and rightfully so. Increasingly, cutting-edge companies are defining themselves as global webs of best-of-breed relationships, as seamless networks of talent and resources not limited by geography. In that context, the value and health of the company is based in large part on the value and health of its partners, and thus the traditional stereotype of “internal” vs. “outsourced”, or “domestic” vs. “offshored”, becomes less and less germane. That’s why companies as diverse as GE and Proctor and Gamble have numerous ventures and research labs outside the U.S., and view much of their future growth and competitive advantage as coming from new products and systems developed by partners outside the U.S. It’s why telecom supplier Ericsson attributes its amazing turnaround in the last five years to its collaborative network of global relationships—like Sony for design and style, French Telecom for music and audio, Flextronics for manufacturing, and Google for Web capabilities. Ericsson didn’t seek the cheapest “suppliers”; it chose the most value-adding partners to fill specific gaps in its own knowledge bank.So back to Tata. Yes, its prices are attractively lower than those of many other American and European providers, but it’s good at what it does. There’s no price-quality “trade-off”. Once a simple source of offshoring for American firms, Tata has become so successful that it is now expanding into countries like China, Brazil, Chile, Hungary, and the U.S.—and hiring the locals (like 10,000 U.S. employees). One could legitimately argue that Tata is outsourcing the outsourcing business, but that’s the wrong paradigm. Increasingly, in all businesses, the new strategic conversations will be about borderless collaborations. The new “organizations” will be hubs of best-in-class capabilities and contributions from anywhere around the world. And Tata, like GE and Ericsson, will be part of that paradigm. (Small wonder that Ram Ramadorai counts IBM, Oracle, Adobe and HP—traditional “competitors”—as partners in specific ventures.) The net result will be more corporate growth and more jobs everywhere. American companies that outsource their IT functions to Tata grow and hire more Americans. As Tata grows, it hires more Americans. Meanwhile, as American and non-American companies grow, they hire more non-Americans elsewhere.As companies transition themselves to collaborative, borderless networks, I don’t want to be too Mary Poppins sugary about all this. As I’ve written elsewhere, the individuals who lose jobs when work goes elsewhere are in pain, and deserve some societal help. And “partnerships” require a lot of work to maintain. But at the end of the day, as Ramadorai puts it: “Any creation of jobs or opportunities in one country is not at the cost of another country. The multiplier effect of the value the U.S. corporations we work with will deliver to shareholders and their employees is phenomenal.”


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