Death to Offshoring. Long live Offshoring!

Apologies to Rob Thomas for my blatant swiping of the title of his blog entry. For those of you who don’t know, he is a musician-the lead singer for Matchbox 20-and his successful solo career had led the media to pronounce his band dead.  I am amused by how quickly we jump to conclusions about the failure of offshore sourcing of labor. Now, I know I am at odds with many of you (and many of my own colleagues) on this topic, but I believe this “backlash” is a fabrication of the media and the marketers. 

But while the media and many bloggers and other pundits are happily chirping about the “offshoring backlash“, Western, Asian, and even Latin American firms continue to post significant revenue growth. Did you really expect them to keep doubling in size every year after they hit the $2-4 billion mark? The fact that companies with nearly 100,000 employees are not doubling in size every year should not be a surprise to anyone. Offhsoring has been a royal pain for many (the majority, in fact), but the “backlash” is a popular fabrication not supported by the revenue numbers of the providers or the ever-increasing volume of captive offshoring. The Indian IT/BPO industry, the most visible, is growing at a 28% clip in 2007. Doesn’t sound like a backlash to me! And while difficult to do right, if it were not contributing to the financial performance of client companies, the backlash would be manifesting itself in a revenue contraction for the providers. 

But that is not what I want to talk about. I believe that the current model for off-shoring is inherently flawed. It is far too India-centric, as opposed to portfolio-centric. It is almost entirely based on low cost rather than high talent, and the switching costs inhibit the agility that so many enterprises seek. That’s why so many offshoring initiatives fail. Until recently, the low cost of offshore resources obscured the very real challenges that led to these failures, but the sliding dollar, the global scarcity of qualified talent, and the unfortunate but inevitable mistrust that exists across organizational and international borders, have exposed the problems with the current off-shoring models. 

The next phase is about the globalization of the individual. Sure, service companies will continue to exist, but we will be able to assemble teams on-demand in multiple locations. If the two most talented people I can find are in India and Bulgaria, respectively, then why would I not use them both on a project? There will of course be a need for a few centrally located large teams somewhere in the world, but that is very much yesterday’s business model. Knowledge work has gone virtual, but it is time for it to dissociate itself from “off-shoring” as we know it. 

There’s value (and money to be made) in becoming a competent broker of global talent. One company has hopped on the anti-off-shoring bandwagon only to go on to what I consider this “next level” of offshore-more dynamic, more individual, far more fluid, and much more likely to succeed, as it will be easier-I sincerely hope-to align the motivations of the individual doing the work with those of the company paying for the work to be done.

Whenever somebody says to me “Our Talent/Knowledge is our #1 differentiator” I immediately ask “Where is it?”. And if its all locked up in an R&D lab, or in headquarters, or even across a few locations in the US and Europe, then I immediately discount the claim. No one company can lock up all the best and brightest in its field. But I am a lot more comfortable investing in one that has searched the earth for top talent than one that believes the talent must come to them!

Maybe the argument is over semantics (how many definitions of off-shoring have you heard?), but I think that shutting off talent that happens to reside outside the US or Western Europe is a losing strategy.  Call it what you want, but if you want to compete on talent, given how scarce it will be, your strategy better involve finding, retaining, and maintaining people inside and outside your home country.