Because we're not short of positive perspectives on outsourcing: again, anyone attending even one SIG Summit would come away with plenty of evidence for its value, and the outsourcing community and media such as Outsource have more than enough material to make an overwhelming case for why the model has been a good - a great - one for organizations right across the size spectrum. But the benefits aren't confined to individual companies: a wealth of scholarly work has been carried out to demonstrate how, in direct opposition to the assertions of its detractors, outsourcing (even offshoring) is good for those very economies it is supposedly corroding.
A 2006 Harvard University study entitled 'The Politics and Economics of Offshore Outsourcing' articulates the truth of this superficially counter-intuitive position very nicely. Authors Gregory Mankiw and Phillip Swagel found that "outsourcing appears to be connected to increased US employment and investment rather than to overall job loss. Some US jobs are certainly lost to other countries. On the whole, however, firms involved with offshore outsourcing are not shifting net jobs overseas but instead are creating jobs both in the United States and in other countries... Outsourcing will create winners and losers, and the pain of dislocation will be real for workers and their families. Taken together, however, these conclusions suggest that offshore outsourcing is likely to be beneficial for the United States as a whole."
A recent episode of 60 Minutes investigating outsourcing and the increasingly under-fire H-1B visa program in the USA has prompted a good degree of debate on social media and elsewhere, about this always-controversial practice. As readers of SIG blogs (and indeed members of the sourcing and outsourcing community globally) will need little reminding, outsourcing and its practitioners present an easy target for anyone with an economic axe to grind looking for someone or something to blame for the perceived ailments of the American (or any other) economy, especially unemployment: those giving voice to the old lament that outsourcing (conflated, of course, with offshoring) "sends our jobs overseas" now also point to the H-1B visa and charge those companies not "guilty" of exporting jobs with the equally heinous crime of keeping them onshore but giving them to foreign workers instead.
Yet despite decades of such negative PR the model continues to prove an indispensable tool for organizations large and small. Earlier this month, to take just one recent example, Lloyds Banking Group in the UK announced plans for a £1.3bn ($1.6 bn) ITO deal with IBM which will see over 1,900 jobs transferred to the latter; the deal is intended to save approximately £760m ($948 bn) in costs, according to the Financial Times (which, incidentally, quoted the Lloyds Trade Union - "which is no longer recognized by the bank" - as writing to its members that "staff transferred to IBM will be kept on for a year but most would be laid off within four years and replaced by cheaper, offshore workers").
I have always valued the power of communication. When I entered college, I didn’t know exactly what I wanted to study. I realized that although I was “good” at many things in school, there was one thing I excelled at – communication. I was a strong writer, and an even stronger speaker. I saw that when most of my classmates dreaded speaking in front of others, that I always enjoyed the experience, and was excited by it. This was the turning point when I decided to focus my career in communications and marketing.
The power of effective communication cannot be underestimated. It is a critical component of life. I’ve seen the impact of effective and ineffective communication in many types of businesses. Ineffective communication has the ability to break businesses. If you can’t communicate effectively with your customers, your intended messages won’t be received or understood – it’s like you’re speaking an entirely different language from them.
So how can you speak the same language as your sourcing clients?
I’ve worked with many companies that provide services and solutions to sourcing and procurement professionals. It’s very clear what separates the successful providers from the rest of the pack – effective communication with their clients. In order to serve and advise sourcing clients in the best way possible, your team must be able to communicate to them through a common language of sourcing. It’s not just about being highly knowledgeable and educated on all things sourcing, it’s about effectively communicating by speaking their language.
Here’s how you can grow your business and better serve your clients through effective communication:
Traditionally, one of the inherently daunting challenges in Procurement and Sourcing is to quantify and report on cost savings, cost avoidance and/or cost reductions, which can be collectively referred to as "added value." One very effective way that I have been able to successfully communicate added value and metrics to many C-suite members is by positioning it in a different way. I have found that by using the terminology and calculation for “Equivalent Revenue,” it is generally better received. Since it is a much more common business term and quantification, the C-suite can relate to it and it can be directly measured against the company’s overall revenue. As such, it is more widely accepted than trying to describe such value as only cost reductions or savings.
Perhaps most importantly, it is really as simple as taking the actual quantified “added value” and dividing that figure by the company’s overall net profit. A quick example: If the total aggregate added value amount is agreed to be $10 million, and the company’s overall net profit margin is 8%, the Equivalent Revenue needed to generate the same amount of that net profit would be $10 million divided by 8%, which equals $125M. By representing the figures in this light, C-suite members can readily identify and appreciate how much time, effort and expense would be needed to generate the same amount of sales revenue, and therefore clearly recognize the importance of an efficient and effective Procurement and Sourcing organization.
Guest Blogger, Dave Gallaer, Head of Procurement and Sourcing, NatWest Markets/Royal Bank of Scotland Securities, Inc.
Of the many laws that affect the international outsourcing space, one of the most important must be that of diminishing returns. At its heart outsourcing is about efficiency – a provider can only offer a decent value proposition, and turn a profit, if it can achieve a desired output more efficiently than can a would-be buyer of its services – and yet there’s only so much money in the hypothetical pot to invest in driving efficiencies: as a very basic example, if one can spend $x to achieve 10% savings, by the fifth investment of $x the savings made are only around 60% of what was achieved with the first tranche. The returns diminish. After a while, it becomes less and less worthwhile to invest $x in that project, when the same amount put into another deal can yield significantly more.
Finding the right balance between investment and returns (and knowing where is the line beyond which further investment will yield returns too paltry to justify) is vital in any business, but especially one as efficiency-based as outsourcing, where relationships have historically often featured buyers demanding constant and consistent efficiency gains and savings – and, moreover, where the necessary investments in technology and people can be gigantic. Hence the desire on the part of providers to share the value gained by any given investment across as many clients as possible – and the complications resulting from buy-side demands for bespoke work and customisation without a simultaneous understanding of why this of necessity means higher costs, which need to be passed on somewhere, somehow…
For the past 60+ years, the standard joke about Artificial Intelligence (AI) has been that it is “the future.” In 1950, Alan Turing questioned whether machines could think like humans…and less than ten years later, Marvin Minsky founded the AI lab at MIT. For decades, people tinkered, pondered and philosophized about robotics. Factories installed automation to remove workers from redundant tasks…but advancements in office settings didn’t progress at the same level. People hypothesized about flying cars, but few could imagine cognitive computing. I think it’s finally safe to say that the future is now. AI and Robotic Process Automation (RPA) are no longer conceptual ideas…they are business strategies that will continue to impact our lives in radical ways.
A recent Forrester study predicts that by 2021, 6% of U.S. jobs will be replaced by robots. While it may not sound like a lot in the grand scheme of things, consider that it represents growth from 250 million in 2016 to 2.9 billion in 2021. Sure…we’ve all dealt with AI and technological advancements already: call centers that put us through a series of (irritating) steps before you can finally talk to a human; travel aggregators that find the best deal across all airlines…ads that stalk you online after one quick search for a new printer…but until recently, it was hard to see how it would really affect the world of sourcing and procurement.
The word “revolution” gets thrown about a fair bit at present (not least by me…) when discussing the new wave of automation technologies which are transforming the way organizations do business. But are we talking about “revolution” or “evolution” – sudden and dramatic, or gradual change? Well, it’s a bit of both: the technology itself is evolving. We can trace, for example, the evolution of IBM Watson back to the Deep Blue chess computer which beat Gary Kasparov back in the mid ‘90s...which can in turn be seen to have evolved from its predecessor Deep Thought...which itself was a successor to ChipTest (developed in the 1980s at Carnegie Mellon University)...and so on, back to Turing and beyond. While there have been revolutionary moments along this path – the transistor, the integrated circuit etc. – it’s clear that this is an evolutionary sequence, at a pace which may seem very far from “gradual” to those who’ve been alive to observe it but which, nevertheless, consists of successive advances built upon what’s gone before.
With a new U.S. Presidential Administration, I have been thinking a lot about the future of my little nephew, who is just a toddler now. Like other aunties, I worry about the longterm impact of current votes on our Earth, our communities and our economy. My nephew is considered a "Centennial.” I thought I'd take a moment and learn more about the Centennials and what tools they will have to combat some of these "orders" and "choices."
Centennials, or Generation Z, are kids born in 1997 or after. They are 25% of the population of the United States (about 78 million people). Nearly 48% of them are minorities. They seem to have an excellent grasp on the challenges they face in their generation; those of decreasing environmental resources like water and increasing cultural issues like religious wars. They have learned that being different is okay. They have learned not to be too risky. However, they have also learned to adapt by working around challenges and building their own solutions. Remember, this is the first generation to live entirely with the internet. They have been surfing the web their whole lives. So this makes for a more serious, more open-minded person, albeit with a short attention span.
Mary Zampino, Senior Director of Global Sourcing Intelligence, SIG
The build out of the “internet of things” will drive the doubling of knowledge every 12 hours, according to IBM. That means that every time you go to bed for the night, an entirely new amount of information has flooded the world. It wasn’t that long ago that robots were only part of huge factories. Now they have them available for purchase at local retailers for less than $50. Robots are more than mechanical machines…in today’s world, they are incredibly advanced tools that have the ability to automate everything, including driving.
As sourcing professionals, it is necessary that we all understand the new world we are living in, and how it impacts not only our organization, but our daily job. Do you have a knowledgeable understanding of:
How you are going to source these new products?
How you will negotiate contracts for technologies that didn’t exist last month?
How you will incorporate these products into your work?
How contracts will be crafted to protect IP?
Do you have the knowledge, skills and competencies to fully grasp the future that is here and expanding exponentially?
Education is the answer…and there are a few simple things you can do to support your own education:
Make sure you are reading a book a month. That’s an investment of only 15-20 minutes per day. If you don’t know what to read, (I have this problem) ask someone you trust, explore the internet (trusted sites) and determine what the most successful people are reading. Make sure these books are not just about your industry or current role, but about business, innovation, creativity and other areas of focus. By reading a variety of books, you will gather different insights and uncover different views on the changing world.
Teach. When you teach others, you learn. You have knowledge others want and they have insight you need. Learning is a mutual relationship.
Mark Pollack, Vice President, SIG University and Chief Strategy Officer, SIG
At dinner recently, a guest held us all entranced as he described his current work: a post-doc at a prestigious London university, he has been working for nearly two decades in artificial intelligence (AI), specializing in trying to teach computers how to teach other computers. While much of his work is simply too esoteric to explain here (that's my code for "it went right over my head"), what was very obvious to me was the extent to which things have advanced since we first met - as he was just setting out upon his journey in this field - and how rapidly theoretical advances are becoming practical innovations which then, in turn, move out into the mainstream. Problems he and his peers were wrangling with only a few years ago now seem like ancient history, he said, and while "the future is always infinitely far away, tomorrow seems closer than ever."
If any of us at the table had had any doubts before that we're on the verge of tremendous social change as a result of automation and smart technology - and I don't believe anyone did have such doubts (as one would have to have had one's head thoroughly buried in the sand not to be aware of the whirlwind approaching us), they would have been thoroughly dispelled by the end of our companion's passionate and impressive address. But, of course, how to react to the automation revolution is immeasurably more difficult than simply to assert that it's coming...