An Outsourcing Myth Exposed

Ross Atwater
Ross Atwater

U.S. businesses are at a critical crossroad as they decide whether to reinstate the 9 million jobs that have been lost in the recession so far. Many experts say that they will not, and the reason is that companies still believe that employees are inefficient compared to contract workers, shared services, and outsourcing. This view is reinforced satirically on a daily basis in mainstream news media. In this comic strip published in the L.A. Times on December 8, 2009, the author’s irony reflects the view of companies that believe workers are inefficient whether they are outsourced overseas or employed domestically.

A case can be made that it is not employees but companies who have created work environments that are increasingly inefficient—environments where “messing up” up is a self-fulfilling prophecy as information is stored in an array of locations across dispersed business units. But this cycle is being broken by companies like Nestlé who are discovering that the value of employees can be dramatically increased if the right blend of Web tools and process changes are put in place. We refer to this blend as a virtual insourcing business model (read more on virtual insourcing here).

Virtual Insourcing Vs. Traditional Business Model

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In a traditional business model local, business units share a degree of common knowledge; however, there is also a large amount of isolated, specialized information that comes in the form of personal talent, departmental information, independent strategies, and goals. The inherent benefit of the virtual insourcing business model is the speed at which such information can be transferred between of knowledge workers.

Connecting separate business units using a virtual insourcing Web platform (i.e.  virtual insourcing) not only speeds up the sharing of common knowledge but provides controlled access to specialized information that would have otherwise remained unknown. For example, the exchange of information can take place freely between more experienced workers and entry-level positions, helping retain knowledge and reduce training costs that can be lost when a senior-level employee leaves the company.

Virtual insourcing Web platforms can also highlight talent within a company as efficiencies become visible. In other words, an employee whose participation may have gone unnoticed prior to using virtual insourcing would now be recognized among users (and management) due to the transparent knowledge transfer occurring across the platform.

Greater knowledge through knowledge transfer can also result in increased business scalability—greater output per worker—which, ultimately should increase the sales and revenue of the business. In this way, virtual insourcing can maximize efficiency and potential.

Virtual Insourcing Vs. Outsourcing

Employing a virtual insourcing business model is a viable alternative to downsizing or outsourcing work. According to UCLA’s Anderson forecast, unemployment is expected to peak at 10.5% in the fourth quarter of 2010 before it settles to an estimated 10% for the remainder of the year. A senior economist hypothesized that one reason for the high rate of unemployment was that business firms who formerly viewed office overhead costs as fixed now view them as variable—that is, most of recent downsizing was done to reduce overhead employee costs in the form of salaries.

But when virtual insourcing is utilized, downsizing becomes a last—not first—resort for reducing expenses. A virtual insourcing Web platform demonstrates its value in the form of cost savings and increased revenue because employee interaction costs are lowered and the speed of transactions increases from sharing

One of the benefits of the outsourcing model is its focus on corporate-wide transactions on a global scale. But outsourced workers have limited access to the common knowledge that is siloed among various business units and that can cause additional work downstream (e.g. customer issues arise that have to be resolved). In addition, business units each work toward their own sets of goals and have different approaches toward reaching them, which creates high inter-unit interaction costs. Businesses that employ an outsourcing business model also limit the visibility of their employees’ contributions, and without positive reinforcement, this can decrease the productivity of employees. It is easy to see how outsourcing can fuel the myth that employees are the source of inefficiencies.

Improving employee productivity has never been easier. The benefits of virtual insourcing include both sharing of specialized knowledge that creates market advantages and reversing the inefficiencies created by obsolete business models.

Ross Atwater is Division Manager of the Accounts Management Group for the Satorian Group, LLC, in Charlotte, North Carolina, where he is responsible for marketing and sales for the group throughout the United States. Ross co-authored The Power of Sharing in an Uncertain World in the Fall 2009 issue of the GBR.

Related Articles in the GBR

The Power of Sharing in an Uncertain World by Donald Atwater, PhD, Peter Knox, and Ross Atwater
Offshoring May Slow Impending U.S. Economic Recovery by Fred Maidment, PhD
Managing Organizational Knowledge by Mark Chun, PhD, Michael Williams, PhD, and Nelson Granados, PhD

Author of the article
Ross Atwater, GBR Author
Ross Atwater, GBR Author
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