Outsource services not knowledge

Of the most hotly debated trends of recent years, business-process outsourcing and offshoring have generated much controversy and discussion. Aside from the projected cost savings and streamlined operations such initiatives promise, Mike Burtha, Mike Barr and Kathy Hagen examine the often ignored risks associated with losing knowledge, intellectual property and the ability to innovate and learn.

Most of us will have heard or been part of the countless arguments for and against outsourcing, offshoring and the combination of the two, outsourcing offshore. Rhetoric has come down hard on each side of the issue. On the one hand, we are told that to be competitive in today’s marketplace you must outsource and offshore or die, however, the counter argument, at its extreme, says that offshoring sends jobs elsewhere and will be the ruin of many economies.

When we pause to consider the amount of offshoring, outsourcing and outsourcing offshore undertaken today one thing is clear: the idea of moving processes from an originating facility to another location and/or another company is a reality of today’s global business environment. Rather than debate the wisdom of investments that have already taken place, it is more important to focus on understanding the impact on the long and short-term economic and social environment of our global society, and how we will deal with the potential consequences. Specifically, we need to examine the impact of outsourcing on the effective and efficient building and flow of process and customer knowledge. Since outsourcing or offshoring processes and programmes are already underway there is tremendous benefit in understanding and determining how we can increase our ability to remain competitive, while anticipating and preparing for the work that will ensure sustainable future success.

It is worth examining the language used in this field, which is where complex matters of business and knowledge often start. In this case even the terminology, used in vastly different contexts, challenges our ability to understand the complexities of this learning challenge.

Outsourcing and offshoring are often used interchangeably, although these terms describe different business processes. Outsourcing is the process of hiring an external partner to provide services originally performed within the organisation. Offshoring involves moving the services from within one company in one country to another country. These services may or may not remain within the same company. Simply put, the same job, will possibly remain in the same company, but will now be located in another country. Finally, outsourcing is the process of moving work to another company located in another country, which is also known as offshore outsourcing.

It is easy to see why there is such confusion. These business processes have been utilised for many years, especially in the manufacturing sector. Cost benefits are most often the desired outcome and the prime reason behind the movement of services. Quite often, the popular media and others confuse the terms by taking offshoring to mean anything done in another country no matter if the service is still managed by same company or not. The term itself has been used to conjure up fear of job cuts and loss of professional stability.

Rather than debate the positive and negative elements of these initiatives, we will examine an area rarely addressed when making such an outsourcing decision by examining some of the business-critical issues around leveraging knowledge and learning. Critical issues include the potential loss of accumulated knowledge for the originating company, the potential risk of losing intellectual capital and property, both of which can affect the value of the company, and the threat to our ability and commitment to building a knowledge-enabled collaborative culture of innovation, learning and continuous improvement.

It is equally important to understand how to mitigate the risk of losing our experience, ability to innovate and customer intimacy. We need to design, develop and implement knowledge-transfer processes and systems, and nurture learning cultures, which provide the basis for developing the skills for future organisational competitiveness.

Before launching an enterprise-level outsourcing or offshoring programme, there are several critical success factors to consider, which include:

Alignment with business objectives;
A strong business case and return on investment;
A full understanding of and proactive approach to managing risks;
A well articulated governance structure;
A strategy for managing human resources and the impact of the programme.

Although these constructs are essential for success, alone they are insufficient. Many companies do not recognise the need to identify and remove barriers to the flow of communication, knowledge, experience, ideas and innovation caused by geographic, cultural, time, language or organisational boundaries. These issues need to be dealt with in a considered manner to ensure workers remain knowledgeable and companies are competitive. To prepare for the future, we must analyse marketing, customer and manufacturing trends and data accumulated from day-to-day operations when solving business and customer issues. To ensure its future viability, the business needs to understand and adopt an integrated approach to capturing, protecting and re-using the experience, knowledge and wisdom from the new location or business partner. For example, how does the originating company identify its large or small innovations, implement its process improvements, address customer needs and integrate the learnings back into the corporate knowledge base? Who owns the resulting intellectual assets, such as trade secrets or patents that result from the everyday accumulated knowledge or innovation? And, how does the originating company spot trends in customer data, manufacturing issues or interest patterns across R&D lines if knowledge cannot be systematically identified and made visible to the company? How will it identify the jobs of the future for which knowledge workers can be trained if the data, knowledge and insights are not made available? How can we continue to make better decisions if we do not have the experiences from making them and seeing the outcome over time?

Thankfully we have the capability, creativity and experience to build the processes to identify critical knowledge, data and insights into all of our current outsourcing, offshoring and other partnering activities. We have the experience in our society, amassed from years of managerial initiatives and tried-and-tested processes to identify and transfer critical knowledge. We do not need to reinvent this wheel. We have the enabling technologies to facilitate the velocity, volume and vector (direction) of knowledge flow. The use of team learning, active learning sessions, after-action reviews, diagnostic interviewing skills, accelerated-collaborative environment (ACE) programmes, tacit-knowledge-transfer processes, peer-assist programmes, and skills in organisational effectiveness and globalisation are now essential to increase our ability to learn and unlearn across boundaries. To ensure that learning processes are used, they must be well thought out and culturally appropriate. They must not be seen as creating additional work or standing in the way of expedient work. They can be designed to integrate with or mirror existing processes while still ensuring that deep learning, knowledge and innovation are brought back to the originating company to be used and analysed for future needs. Keeping workers involved with these insights and information also helps keep them and their companies up to date, flexible, responsive, and able to shift and change processes when necessary.

Another issue is the risk to intellectual property and assets from new partnerships. As in all good contracts, determining the ‘what-ifs’ of innovation and improvement must happen before any issues arise. Creating procedures and policies to ensure proper identification and ownership of innovation or thought capital is paramount to the stewardship of the company’s value but must adhere to the laws of the country where the work is carried out.

The steps you take to identify and capture intellectual capital, insights and learning must continuously improve the skills of knowledge workers while increasing organisational capability. At a basic level, the following considerations are essential when designing these steps:

Active engagement of the organisation’s leadership to provide visible, ongoing sponsorship and buy-in. Leaders must strive to balance the potential for innovation with the capability to perform. In an increasingly discontinuous business environment, what was yesterday’s commodity process might be tomorrow’s core competency. Realising this, leaders must look to grow knowledge-enabled collaborative organisations with partners that can both extend an organisation’s reach, enhancing its offerings, while providing resource and cost optimisation;
Establish continuous improvement processes and programmes, such as lean manufacturing or Six Sigma, which are beneficial to knowledge sharing and ensure centres of excellence, knowledge sharing and collaboration methods exist to broadly communicate learning;
Create intellectual-property and intellectual-assets agreements that meet your business needs and are appropriate to the countries and organisations involved. Include these with your terms of agreement if your legal department considers the timing correct;
As you identify the various processes that the other location or company will perform, incorporate team and individual learning sessions into each function. An owner is required for these processes. Determine key processes needed and how best to codify or transfer this learning from the outsource company back to the originating company in a timely, ongoing manner.
Develop shared tools and services. Standardise processes where possible and ensure they are integrated with the way the company works, are culturally appropriate and are adhered to by all groups;
Review and identify the technology needed to capture and transfer learnings where appropriate. Include costs within the budgetary requirements of doing business;
Appoint owners for the resulting data within the originating company. Give them analytical tools to review and incorporate learning into the originating company;
Structure processes so that internal strategy groups can analyse the resulting analysis, and incorporate trends and patterns in future corporate strategy;
Incorporate ownership of the processes and use of resulting knowledge into the project management, quality assurance, organisational effectiveness, training, HR, R&D and other groups as appropriate. Again, implement standardised processes based on dialogue and discussion to increase effectiveness and speed of understanding and application. It is easier to develop the ability to discuss and codify knowledge than to break existing habits of isolation or miscommunication;
Develop other programmes and processes such as communities of practice, peer assists, and accelerated-collaboration environments across boundaries to ensure learning continues.

Sparks of innovation come from the manufacturing floor, from the scientist’s bench or from a call centre. As companies become more removed from the experiential knowledge that leads to innovation and ensures continual improvement, the ability to face future trends may lie with partners or locations elsewhere rather than with the originating company.

As a global society, it is essential that organisations are creative with change to continue addressing the opportunities and challenges in the marketplace. We need to educate ourselves in the processes behind innovation and become students of change. We must learn the competencies required by the global economy, become adept and agile at learning and unlearning, and communicate and collaborate in our daily operations. Even while we save costs and build efficiencies, we must always expand on our ability to generate, accumulate and re-use knowledge to ensure the originating company retains its core competencies, customer knowledge and agility to meet future business needs.

Michael A. Barr is the founder and president of Barr Associates. He can be reached at mibarr@att.net

Mike Burtha is founder and president of Applied Collaborative Strategies and a visiting scholar at the Harvard University Graduate School of Education. He can be contacted at mburtha@msn.com

Kathy Hagen is a senior manager at Deloitte. She can be contacted at kahagen@deloitte.com