Preparing for ’09: It IS time to dump the term “Outsourcing”

You may recall the discussion we had earlier this year regarding whether it is time to stop using the term "Outsourcing".  The general consensus among many of you (including myself) was that we are stuck with the phrase and we shouldn't go out our way to dress-up global sourcing with other, more relevant, terminology:

"However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor"

With the dramatic changes in our corporate climate and political attitudes in recent months, I believe it's now time to change our well-worn phrase.  The core issues being:

1) Poor comprehension of global sourcing. Too many people associate "outsourcing" with greedy corporate leaders only interested in slashing costs, with little regard for employee livelihood. They have pre-conceived notions that organizations have forgotten about their people, and only care about the bottom-line.  I can assure anyone that is not the case with the majority of companies with whom I speak with daily. 


 In fact, the prime reason why many firms haven't ventured into wider-reaching global services delivery models, is because they care about their people too much and worry about the turmoil a global transition would have on staff morale and retention of key talent.

2) Guilt by association. The current recession is fuelling political passions regarding job protection.  I have had a couple of occasions recently where I have been drawn into hard discussions regarding what I do.  I have to explain that most my clients are going to "outsource" whether I like it or not, and my job is to help them approach it correctly, and not simply jump at the lowest cost solution.  The simple fact that I am associated with "outsourcing" paints me in a poor light with some idealists, which, quite frankly irks me. I see myself as a realist, helping real businesses deal with the hard realities of surviving in todays challenging business environment.  I know many of you who visit here regularly feel the same way (and 20,000 of you do), whether you are a consultant, practitioner, analyst or service provider.  

3) Many companies need to make hard decisions or risk going under.  As we discussed last week, 2009 is a survival of the fittest across almost all industries.  Enhancing global market penetration while reducing operating costs has never been as critical in this long corporate winter.  Putting tough decisions on hold is no longer an option and simply shaving a few percentage points off pockets of cost is unlikely to have a dramatic impact on many struggling businesses.  Global sourcing clearly provides a vehicle to help make radical changes, but is only part of the answer.  The other ingredients are the ability to make smart business decisions and deliver great leadership through your managerial ranks.  This simply isn't "outsourcing", it's smart global business strategy.

4) Skills at affordable prices.  The talent available across the globe to help drive competitiveness is so much more developed than it was 5 years' ago.  Will-FerrellThe incredible advancement of the Internet has completely changed the game in bringing international markets close together. Global sourcing is so much more than using a low-cost call center rep these days – and too many people are not aware of this yet. It's about supporting complex ERP systems, analyzing accounts, clinical data, logistics, investment research, engineering etc. In so many cases, it's easier to find many of these skills engaging with global sourcing partners than hire them yourself. That's not "outsourcing", it's smart business strategy. We work in business of global service delivery, which is tied directly to global business strategy. Hence, we are "global business services" executives.

Love to hear your prolific thoughts on this topic (as per usual).  PF

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23 Comments

  1. Jim Bogart
    Posted December 21, 2008 at 9:34 am | Permalink

    I have to agree that “outsourcing” has a negative connotation. Politicians have been using the word as a club. Still not all such changes are across borders so “global sourcing” may not fit. It has a good ring to it.

    I like the phrase “business process re-engineering” but it may sound too industrial. Lets see what terminology they use in Detroit. Talk about being between a rock and a hard place,

    Jim Bogart

  2. Posted December 21, 2008 at 2:14 pm | Permalink

    Hello Phil,

    Love all of your comments and lalways look forward to your thoughts on the state of the BPO industry. But this time I think that I must kindly disagree. Not with your view of reality as stated above, but rather #2 in particular.

    I think that the polital enviroment and fallout is real and it will be an challenge, at least for the time being, to be able to overcome some of the lingering perceptions. We won’t be dropping the term “outsourcing” anytime soon!

    The good news. In tough economic times, it is more important then ever to position your company’s sales pipeline, so that when the market shifts upward, your team is ready.

    Keep on commenting!

    Bill

  3. Posted December 21, 2008 at 2:24 pm | Permalink

    Hi Bill -

    My point being that “outsourcing” needs a broad re-defining to avoid some of this political fallout. At the moment, the “O” word is associated with shipping jobs offshore – and nothing else. There needs to be a broader view of global sourcing and keeping businesses competitive, and less of the paranoid political fallout. Let the politicians focus on bailing out unprofitable car manufacturers and trying to save a greedy banking system, and keep them away from meddling with businesses that are striving to compete globally in a terrible economic climate,

    Phil

  4. Frank Feather
    Posted December 21, 2008 at 2:27 pm | Permalink

    I agree that outsourcing should be scrapped, but for none of the reasons you cite.

    Simply put, outsourcing is a futile term in a global economy. It would mean to send work outside this planet, to another planet.

    On this planet, every economy is now interlinked, with one resource pool for human labor and all other inputs, from natural resources to capital.

    Frank Feather

  5. Posted December 21, 2008 at 2:33 pm | Permalink

    Frank -

    You’re preaching to the choir. Our economy is global, and you need to optimize your global resources and business opportunities to be successful. That means satisfying consumer demand in other countries that just your own. Try telling that to some businessmen in Detroit :)

    PF

  6. Plamen Toshkov
    Posted December 21, 2008 at 2:39 pm | Permalink

    Phase evolution is inevitable to happen as the “outsourcing” term gets heavier and heavier in its connotation over time…and yes, primarily associated with the low-end of the value chain.

    Maybe the mature stage of the high-end BPO services lifecycle is yet to come and hence its new more adequate name,

    Plamen Toshkov

  7. Posted December 22, 2008 at 1:44 pm | Permalink

    Interesting discussion as usual!

    The advisory practice I led for five years or so struggled with this quite a bit: We tried Global Sourcing, Global Talent Management, Global Talent Sourcing, and a few others I don’t rememember or am too embarrassed to share.

    After a couple of years of experimentation, and many odd conversations with clients, I said, let’s call it what it is–outsourcing! Conversations with clients got easier, business grew. In other words, politically charged negative connotations exist, but creating a new term was more trouble than it was worth. Sensible execs knew what was right for their business and understood the political challenges ahead if they made the decision to outsource.

    Now, Phil and Horses are in a position, because of the 20,000 readers here, to truly change the term. However, I think changing the name without changing the meaning is a mistake.

    There is so much more the “global business services” industry could do that it is not yet doing, that I think we waste an opportunity, even if you are successful changing the name, if we don’t also change the nature of the business for the better.

    Esteban

    PS–An old post on my blog here http://novasphereblog.com/2008/08/26/why-outsourcing/ suggests why I think we have a ways to go, and suggests that when we get there, we won’t call it outsourcing anymore!

  8. Posted December 22, 2008 at 2:58 pm | Permalink

    Esteban,

    If you had this discussion with me 6 months’ ago, I would have been in 100% agreement with you. When you deal with clients with the sole purpose of taking them to an outsourcing transaction (i.e. after the decision to “outsource” is made), of course you are fine with the term, despite the stigma. You’re there to get a deal done and there’s little point making any bones about it.

    However, when you’re constantly communicating with general business leadership, the talking points need to be centered on developing a global delivery business strategy, and developing a global plan for accessing skills, technologies and support services. Almost all the F1000, and most of the Global 2000, have now entered into offshore arrangements with IT / BPO suppliers. This is mainstream, widespread use of offshore “outsourcing”. It’s not really outsourcing any more, it’s simply service-provisioning. Most critical is the current political climate with the economy on life-support; the sensitivity right now towards job protection is particularly strong, and many people have pre-conceived notions of what they view as “shipping jobs offshore”. I recently got harassed at an academic convention, where a senior academic simply went on a violent anti-outsourcing tirade. It took me a while to explain what global sourcing is all about and why it’s no longer a taboo-issue – and why many business cannot remain competitive without a global sourcing strategy. That is a core reason why it’s time for a facelift, and for us to start talking about the business realities of the current economic situation and how global sourcing has an integral role to play. Moreover, the US is a superb sourcing location and needs to be part of that discussion. Take a look at some of the excellent onshore, low-cost facilities providers such as Capgemini, Fidelity and HP have established,

    PF

  9. Posted December 23, 2008 at 3:20 am | Permalink

    Appreciate the respnse, Phil.

    I think we are in agreement, mostly, although perhaps I have developed too thick a skin–I too have been attacked by academics, labor leaders, and even–oddly–free-market conservatives for my association with the industry. And I have learned to ignore them!

    Your point is well taken, though, that business is much more comfortable with the term than the general public.

    I have developed a short but generally effective speech that starts by asking the anti-”outsourcing” person a few questions: Do they buy American cars (and if they do, do they know whether the American car was built in the US, Canada or Mexico)? Do they know the parts content of said car? What brand is their TV? Which bank owns their mortgage? How would they like to pay a fee everytime they call their credit card company? What if their investments carried fees in excess of 5%? What was the last item they bought at Wal-Mart? (I have a lot more, but you get the picture)

    My point, of course, is that whether we call it outsourcing or not, we all benefit from a global economy. Maybe changing the name will help, but changing the mindset is where we need to get to!

    Like so many of our other ills, I think this one comes down to education…

  10. Ratnesh Mathur
    Posted December 23, 2008 at 6:08 am | Permalink

    Appears the term – “Outsourcing” – will go the way, “eCommerce” did …. you dont find too many providers & consultants from the ’98 to ’01 years, go around talking about an eCommerce business/industry any more. I reckon, the term – outsourcing – will keeps its place in websters but won’t be half as googled as it does today.

    Much before Offshoring & Outsourcing came in vogue, some of the earliest offshore outsourcing providers opted to use the term – Localisation – rather than – “Offshore Outsourcing” or “Translation Aggregators”. In recent years, despite the best efforts of large ITO ( IT Outsourcing) providers to cannibalise the localisation industry through its ” Testing/Validation/Verification” service units, both the term “localisation” & the industry continue to be a distinct IT service. Where “localisation” succeeded & “outsourcing” failed, is largely in creating & uniformly accepting a non-profit body, which defined & controlled the standards, in the industry.

    Watch for trends in 2009 as big IT service providers who unwittingly moved into BPO, converge their Infrastructure/Testing/BPO businesses – an aggregation of the businesses where they failed to move out of FTE-based billing i.e. their lowest revenue- productivity contracts. Watch too for trends of big consulting majors who focused on BPO & ITO services post the e-Commerce days, yet again reclass business units & revenue under consulting & more trendy labels like innovation & business transformation services.

    As the term “outsourcing” fades away, beyond the much spoken IT & BPO horizontal convergence, a bigger focus on core competencies will lead to a faster verticalisation in a recessionary global economy. Lots of interesting M&A activity is already underway – not just captive sellouts, but we may even see some contract & employee swaps between Outsourcing providers, next year.

    Lets see which horse stays the course in 2009, Phil. Just change the bottle, dont change the wine. You run an excellent blog here.

    Best Wishes,
    Ratnesh

  11. Mike Oswalt
    Posted December 24, 2008 at 10:29 am | Permalink

    Agreed with all with the negative connotation that outsourcing has. Changing the term won’t change the connotation that it attracts.

    Here is a great paper with the etymology of the word and early uses http://www.imf.org/external/pubs/ft/wp/2004/wp04186.pdf Interestingly enough, the first use in 1979 was in the automotive industry but, not in the US. The earliest use was about the British auto industry contracting out engineering design work to Germany. The reason was not cost-cutting but rather capacity constraints in the UK.

    Another interesting resource for researching the use of terms is Google Trends. Here is a comparison of the terms outsourcing and BPO http://www.google.com/trends?q=outsourcing,+BPO It indicates that the use of outsourcing as a search term is decreasing and the term BPO is increasing. There are also other interesting areas on the page related to regional use of these terms. Google trends is a great tool for stuff like this. You may want to try other terms.

    The black-eye that outsourcing has earned, in my view, is due to poor implementation and job loss (or more accurately fear of job loss – a lack of understanding the benefits to all parties). Even taking offshoring out of the equation and dealing with only domestic outsourcing, there is in effect, job loss or keeping your job but, finding yourself working for a different company. This is the part that causes angst and the negative connotation.

    For a business the idea of focusing your labor, energy, and resources on your primary area of expertise still makes good sense. It has always made sense to seek external professionals for business advice in areas that you do not have expertise. I had a chimney sweep come to my house the other day and sweep my chimney. I could have invested time in learning how to do this and bought the tools to do it but, I choose to outsource the service to a professional. For a business it comes down to determining what your core business is and what specializations are better performed by others. There needs to be a greater understanding of the benefits to all parties in outsourcing http://www.hoover.org/publications/digest/3042386.html

  12. Posted December 24, 2008 at 10:29 am | Permalink

    Phil,

    Great comments and timely as usual. The dynamic of language and ‘labeling’ in the business environment is quite interesting. As a client of a large analyst firm in the 1999 timeframe I watched them reclassify their term/program ‘Technology Enabled Relationship Management’ into CRM. This change was in response to the overwhelming utilization of CRM in the marketplace and the tremendous challenges associated with ‘teaching’ or evangelinzing a new term to their clients. There was no material change to the content, simply semantics. The lesson was clear, when the market is ready, ‘it’ will change the nomenclature, regardless of any vendor’s desire to optimize, evolve, segment, focus or otherwise change the ‘labeling’ dynamic. CRM is as ubiquitous as Outsourcing and, in it’s application, just as diverse and inaccurate. Yet it remains a powerful component of our business language. It will be interesting to observe what changes ’09 will force in the marketplace and how it will affect our language. BPO, ITO, KPO – what’s next?

    regards,
    Tony West

  13. Posted December 24, 2008 at 10:48 am | Permalink

    Mike / Tony – thanks for your inputs.

    I am not suggesting we devise a radical “new name” for global delivery, but more that there needs to be a better way of communicating global delivery to the general business and academic audiences that isn’t simply associated with low-cost offshoring accompanied by tales of poor delivery experiences (people only like to talk about their bad experiences, but not the good experiences). And that means a shift in terminology that reflects the reality of the business world we live in, not Dobbs-esque propaganda.

    Ratnesh hits the nail on the head when he talks about the term “eCommerce” which quickly died a death. I remember the abuse I got from a car showroom salesman, when I road tested a vehicle, and then purchased it online at $5 grand cheaper… true, it’s not pleasant for the traditional business model, but who in their right mind would fork out an extra $5K just to satisfy a dated way of doing business?

    All-in-all, a unified terminology that represents global delivery scenarios, whether they are BPO/ITO/KPO is what we need. My sister blog “Think Global”, which is going to be launched after the New Year and hosted by my research firm AMR, will address the global delivery paradigm from a business strategy context and way from the old “O” way of looking at things,

    PF

  14. Posted December 27, 2008 at 6:40 am | Permalink

    Management is full of phrases and fads that are all the rage for sometime and then fade away as their relevance ceases. Think re-engineering, mobile commerce, flat structures, TQM, delayering, lean structures, pareto, chaos theory….all of you will have additions to this list.

    Today, outsourcing as a term is understood universally by all its stakeholders. If and when the term becomes overloaded or inadequate to represent changed market realities, we’ll see another term come up and build momentum.

    But I’d wait for market forces to drive that change. Else we’ll be no different to the analysts and consultants who continually invent new terms and flog it to package old wine in new bottles.

    Vijay Menon

  15. Posted December 28, 2008 at 1:13 am | Permalink

    Excellent post and discussion. I agree with a few of the later commenters – the biggest problem is that the term is simply a misnomer at this point. A misnomer with political baggage that it never deserved in the first place. Here is my take:

    http://tinyurl.com/8bsgq7

  16. Ayan Majumdar
    Posted December 28, 2008 at 3:13 pm | Permalink

    Totally agree with you Phil. I would rather see this as part of strategic sourcing – we take this in a different spirit when it comes to optimize a corporations supply chain and go for global sourcing. But when it comes to sourcing of services, all reactions comes flooding across the world :-) . I would therefore term this a strategic sourcing of services.

    Ajay

  17. Posted December 30, 2008 at 6:22 am | Permalink

    Phil,

    I think outsourcing has too often been associated with offshore outsourcing. Classical service providers starting with IBM, HP, Accenture and much smaller firms have been executing IT initiatives for their clients while based in the US, for several decades. These were viewed as partnerships with clients/end-users, with hardly any emphasis on outsourcing.

    With the growth of remote firms in India and other countries offering similar services to end users, as well as their augmenting the staff of US based service providers, many services moved offshore. So outsourcing (in reality offshore outsourcing or out from the US) became a mainstream word, and the resulting impact on the US market (some of it of it negative) has been associated with this word. However the older partnership process still runs strongly today.

    I think there should be a conscious effort from all sides, to revive the partnership ethos whether it is local or nearshore or …. offshore. Clients, service providers, consultants need to engage in the process very actively.

    Viewed from that perspective, outsourcing is just a derivative of the partnering process.

    Thanks
    Uttiya

  18. Posted December 30, 2008 at 1:49 pm | Permalink

    The reason most workers connect “outsourcing” with “going for the lowest cost” is because that’s what they see.

    If we lay off enough of our workers, we’ll end up like Michigan. Too few people working to sustain the rest of the economy and no one to buy the companies products.

    Years ago I flew RC model airplanes and my local hobby shop complained that people were buying the big ticket items for less than his cost from catalogs. Soon he closed his doors and I had to pay much higher costs for my nickle and dime parts because I had to pay shipping on the 4 screws I needed to finish the job. If I had paid a few (in most cases less than $20 more) for my radios, he would have been their for my small stuff.

  19. Posted December 30, 2008 at 3:20 pm | Permalink

    We have not used “outsourcing” for a while now. We now introduce ourselves as a “software product development specialist.” I believe it is a model whose time has come, so to speak. The same way that people go to an accountant to file their taxes, companies will reach out to specialist to create new software products for them.

    A long time ago, companies would insist on doing their industrial design in-house. Today, companies like IDEO are thriving and their clients even tout the fact that their products are “designed by IDEO.” Why pay more for mediocre work in-house when you can save money in the end by going to a specialist?

    That’s where Nearsoft is heading, to become a prime software product development specialist. I can see it already, “Our software was crafted by Nearsoft!” :-)

    Now, if I can only get people to stop saying, “Oh, you do outsourcing” after I explain what we do… :-)

    Have a very Happy New Year’s Eve/Day and a blowout 2009.

    cheers — matt

  20. Posted January 7, 2009 at 12:15 pm | Permalink

    Phil, as usual, you’re spot on. The market must move away from “outsourcing” to a more integrated approach that encompasses all aspects of sourcing strategy and delivery. Shared service operations, multi-sourcing and captive in-house operations are all just as valid (often more so) than outsourcing. The quicker the third party sourcing advisors, service providers and clients learn this. The quicker the O term can be seen in context.

    Guy

  21. Posted January 8, 2009 at 7:49 am | Permalink

    Phil: Academic researchers have found that the strongest motivation for “outsourcing” is still labor cost arbitrage. In pursuit of sometimes vanishing cost-advantage, organizations ignore issues of quality, latency, and total cost of ownership. Consequently, in the mind of domestic labor, outsourcing will continue for the near term to be associated with redundancies and downsizing. As the delivery models evolve and the governance models adapt and differentiate (which they’ve been doing for nearly a decade), the umbrella term of outsourcing won’t really define what a firm is doing. New and more careful terminology will emerge as these models mature.

  22. Michael
    Posted January 8, 2009 at 12:08 pm | Permalink

    Hey why not just call it subcontracting!
    Joking aside anything that takes control over their life away from the individual will be viewed with the deepest suspicion and you can call it what you like this will not change.
    I am not sure I buy the view that companies care about their employees – and when I say companies i really mean the leadership teams. In my experience whilst you get a lot of handwringing over the decision at the end of the day they tend to care about the share price and their own future.
    Harsh but the reality of the world in which we currently live.

  23. Rohit Tiwari
    Posted January 12, 2009 at 9:00 am | Permalink

    Whatever is the term used, the impact of outsourcing on the employees will be the same. The business motive to reduce cost will supercede any other explanation provided by the organization as motivation for outsourcing and hence it’s very unlikely that employees are not affected.
    Having said that, this impact on the existing workforce can be avoided to an extent. The move to operate from right location should be a gradual one, primarily targeting growth and ample time should be provisioned to develop competencies at the new location. An effective “rightshoring” can only be achieved by active contribution and engagement of exiting workforce

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