Outsourcing, Knowledge and Competitive Advantage

Outsourcing figures vary widely as you review conflicting media reports. And in the last few months the number of stories of companies now…ok, wait for it…in-shoring, is growing. What does that mean? They have taken the work done via off-shore outsourcing back to the U.S.

Yes, this seems confusing but was it that hard to spot the trend upcoming? Companies under tough economic pressures decided it was more profitable to use resources outside of the U.S. to build products, service customers, even to create new ideas. And they created strategies to move work from the U.S. to locations with lower costs, like India or China. That trend has not stopped, but it is shifting. Now the work is less profitable off-shore as wages rise in step with the increased labor demand, and companies are feeling the effects of less-than-satisfied customers.

One of the difficulties in moving work was that to retain excellence, they also had to move deeply-held organizational knowledge. Even those companies not good at identifying and transferring knowledge in one country now needed to transfer very critical knowledge (for example, how to speak with and service their customers) to another country with a different culture, language and traditions.

Were the outsourcing companies always successful at training and sharing knowledge with their new international colleagues? No. We all have examples of miscommunications and understanding when asking how to fix a technical issue or work out a charge on a credit card. Nonetheless, as the new colleagues gained experience, they began also to gain their own critical knowledge, to hear what the customers thought or wanted, and to therefore gather business
- critical learning.

We lacked in creating effective processes for sharing the deep nuances of the products, the customers or the culture with the new outsourcing partners. But we also lacked in creating processes to collect their learning and bring it back to the heart of the organization.  Companies were increasingly out of touch with the front line of what was happening with customers and products.  That front line often creates competitive advantage by allowing companies to hear their customers wants, needs, concerns and quickly address them, beating out slower moving competitors.

In short, all of the out-sourcing, off shoring, in-sourcing, on-shoring, in-shoring has simply taxed our already less than stellar skills at transferring knowledge. Few companies do this very well, and the additional burden of needing to quickly move the knowledge already not flowing in the organizational caused less than adequate processes to break down.

What is the learning? That the knowledge held by the companies about its products, processes, customers, supply chain, distribution channels—all of that knowledge is key to profitability and sustained success. Treat knowledge like the asset it is. Tend to it, share it wisely but share it well. And never underestimate the power of a well-informed, experienced employee.