Does offshoring lead to a loss of knowledge?Leidt offshoring tot een verlies van kennis? Leder offshoring till förlorad kunskap?Führt Offshoring zu einem Verlust von Wissen?
Volkskrant, a popular newspaper in the Netherlands, published an article with the title ‘knowledge economy under pressure because of shortage of IT people‘. In the Netherlands (and the rest of Europe), there are big shortages of skilled IT people. ICT office predicts that in 2015, the Netherlands will lack 8.600 people in IT, which will double in the years after. 70% of all innovations are related to IT, so the lack of people has a big impact on the economy.
The author writes ‘specifically, there is a shortage of dual thinkers: people that have knowledge of technology and business processes and can make a relation between the two. They need communicative abilities, to work in teams and be able to translate the needs of the company in their requirements. Companies prefer having the dual thinkers in house because of the complexity of the business processes. Hence, outsourcing this function to low-wage countries is usually not an option.’
De Volkskrant publiceerde onlangs een artikel met de titel: ‘kenniseconomie onder druk door tekort aan IT mensen‘. In Nederland (en de rest van Europa) zijn erg grote tekorten aan ervaren IT mensen. ICT office voorspelt dat er in 2015 een tekort van 8.600 mensen zal zijn, dat in de daaropvolgende jaren zal verdubbelen. 70% van alle innovatie heeft te maken met IT, dus het tekort heeft grote gevolgen voor de economie.
De auteur schrijft ‘Er is vooral een gebrek aan dual thinkers: mensen die verstand hebben van techniek én van bedrijfsprocessen en daartussen een relatie kunnen leggen. Ze moeten communicatieve vaardigheden hebben, in teams kunnen samenwerken en de behoeften van het bedrijf kunnen vertalen in wensen en eisen aan de ict. Bedrijven hebben dual thinkers het liefst in eigen huis vanwege de complexiteit van bedrijfsprocessen. Uitbesteden van deze functie aan lagelonen landen is daarom meestal geen optie.’
Volkskrant, en populär tidning i Nederländerna, publicerade en artikel med titeln “kunskapsekonomin under påfrestning på grund av bristen på IT-människor”. I Nederländerna (och resten av Europa), finns det stora brister på kvalificerat IT-folk. IKT kontoret förutspår att år 2015, kommer Nederländerna att sakna 8,600 personer i IT, vilket kommer att fördubblas under åren efter. 70% av alla innovationer är relaterade till IT, så avsaknaden av arbetskraften har en stor inverkan på ekonomin.
Volkskrant, eine bekannte Zeitung in den Niederlanden, veröffentlichte einen Artikel mit dem Titel „Know-How Wirtschaft unter Druck, aufgrund des Mangels an IT Leuten“. In den Niederlanden (und im restlichen Europa) gibt es einen großen Mangel an fähigen IT Personal. ICT office sagt voraus, dass den Niederlanden im Jahre 2015 8.600 Leute im IT Bereich fehlen werden, eine Zahl, die sich in den Jahren danach verdoppeln wird. 70% aller Innovationen stehen in Verbindung mit der IT Branche, daher hat der Mangel an Arbeitskräften einen großen Einfluss auf die Wirtschaft.
I read this logical conclusion frequently in other articles and discussions and I believe that the offshoring industry has created a ‘wrong image’. Maybe the term ‘outsourcing’ in itself has been chosen wrongly. The basic premise is that when you ‘outsource’ certain functions to another country, you lose the knowledge. But is that always true? The alternative is doing it ‘in house’ with employees. But what happens when the employee leaves the company? Yes, the knowledge leaves too (unless you have processes and systems that somehow capture the knowledge).
In an outsourcing situation, you will indeed loose the knowledge if you use the traditional model in which you subcontract a complete project or business process to another company. By doing so, you can manage on SLA’s and company-output and you have no control over the employees the supplier hires or fires. When their employees walk away or are moved to another customer, all the knowledge is gone and you may even risk losing the knowledge to your competitor.
That’s the traditional model. But there are alternatives: offshore staffing or setting up your own company offshore. In both cases, you have complete control over hiring, salary payments and day to day management of the people that work for you offshore. If you set up your own office, you will have to organize everything. If you use offshore staffing services, the vendor has the offshore office, pays local taxes, has a recruitment process and manages all the aspects offshore that you probably don’t want to spend time on. The vendor hires the right person for the right position as you require it. You can create your own function profile, do your own interviews and select the best talented person. And you manage the people on a daily basis, transfer the knowledge as it suits you best among your employees in house or offshore. There is hardly any difference with having your local employees in the loosing of knowledge if you work this way.
The offshore people can be trained on the company’s business processes and be as good ‘dual thinkers’ as any onshore person could be. The offshore team can be ‘ingrained’ with the company’s values, can travel to the office, meet in person, become part of the company’s team. If this is done well, there will be no loss of knowledge and the Dutch economy would have a bright future, having access to sufficient talent to fuel its growth and to excel in innovation.
About Hugo Messer
Hugo Messer is a Dutch entrepreneur, distributed agile team specialist, and author. He is the founder and owner of Bridge Global, a software services provider, and ekipa.co., an agile coaching agency. He has been building and managing teams around the world for the past several years. His passion is to enable people that are spread across cultures, geography and time zones to cooperate. Whether it’s offshoring or nearshoring, he knows what it takes to make global cooperation work.
View all posts by Hugo Messer →
There are 2 challenges:1) Retaining knowledge in the organisation 2) Creating and maintaining the required skills (‘ dual skilled’ as discussed)in your people – even if these are outsourced team members.
Some Good practices to achieve these:
1) Have processes and systems that capture and update the knowledge and ensure these are timely audited to keep it up to shape.
2) Invest in grooming your people the way they way you require them to be
3) Consider your outsourced team as your team extension and consider them as partners in your success.This way they would be better bonded to your organisation and would help control attrition.
4) Be congizant of the cultural nuances (if the outsource partner in outside your country)
It really doesn’t need to lead to a loss of knowledge, provided that you be very “on button” about the externalized parts of your business.
Of course, one had best be very careful when outsourcing the vital bits, core business activity.
The answer is it need not, and often doesn’t, if the company knows what is its core competency (which you would want to keep in-house) and what is not (which you would like to outsource). Definition is what is core to the company’s long-term success varies among companies and industries, but most companies would concede that activities such as processing payroll, or maintenance of IT applications is not core to their success (unless ofcourse it is an IT/ITeS company that provides these services).
Outsourcing has become more strategic in nature in recent years, and you could choose to get additional help in a variety of areas from your partners. Setting up office in an offshore location is not outsourcing – any people you recruit and any IP they create will continue to be part of your company, but you are likely to benefit from labor cost arbitrage, larger pool of qualified individuals to choose your employees from etc.
A careful choice of vendor, SLAs to ensure focus, and an appropriately worded contract will ensure you are able to get the best support from your vendor / partner at all times without losing any knowledge that is key to your business.
In my opinion first part of the article is a valid situation. However the concluding remark against outsourcing is a crude statement and misrepresenting the facts.
The fundamental premise of the problem statement is that there is shortage of skilled IT people. If you cant source it locally, look globally is an obvious alternative in this case. Over the years it is now well established that offshoring comes for help of companies that are in need of such “dual thinker” skilled IT people. Moreover, the outsourcing industry has certainly matured over the years. Its role is no more just limited to offshoring from a low cost workforce destination. There is a marked shift in the way it is being done now. A strategic “right-sourcing partner” approach is helping a lot of customers to successfully overcome the stated problem statement and stay competitve in the market. It is vital to look at offshoring vendor as partner in growth and mutually work out areas of offshoring, critical areas of knowledge retention. Such collaborative efforts would surely produce incredible results delivered at competitive costs.
Whoever wrote that might have collected and put together a few pieces of statistics, but as far as logic goes he is a fool and does not understand business realities.
Even disregarding the remark about low-wage countries, which he clearly knows nothing about – on my low wages, and jobless status, I have my own 4 bed room flat, two servants, one to cook, one to clean, my wife only as home maker watching TV and doing what she likes, and I have my AC on full, with digital TV, three computers, and spend only four hours every day putting into shape crap produced by people from high wage countries. Rest of the time, I do what I like. Everything, from groceries to fresh vegetables, and laundry gets delivered to my door, and security personnel patrol the apartment premises shared in common with others. Send me a message, you are welcome to visit me.
Low wage countries are good, if you got what it takes, because it is the difference in GDP, property costs, and living costs that matter. Low-wage countries do not equate low quality.
It all depends upon you, for in life you find what you seek. You come to low wage countries expecting low quality, you would meet up only with low quality. You come expecting high quality and your bars and filters in proper place, you’d find people who would change and catapult your business growth. And like me, they wouldn’t leave low-wage countries even under force and threat. I don’t want to be a high-wage country millionaire, who has to do his own laundry.
That said, in-house employees, unless fully bonded with the mothership or company on the basis of sweat equity, or profit and loss sharing, are much less reliable for business processes than accountable, independent service providers. Your in-house employee can leave your job and remove and weaken your knowledge base in one stroke. External service providers wouldn’t do that, for providing you service is their business.
Real dual thinkers like independence and soon outgrow employee status and become consultants or independent service providers. You can hardly get enough of them in-house. What you get in-house is only a few dual thinkers with following flocks which try to mimic them.
Whoever wrote that article does not understand 21st century employee dynamics.
Sorry for any impoliteness, but such generalizations as “low-wage” countries turns me off. People get low wages everywhere, whether due to skill or due to fortune. People are jobless and homeless in every country. And fortunate people can be find everywhere. It is extremely wrong and derogatory to generalize. We regularly come up against people who can’t put two words properly together but claim automatic superiority due to nationality, and because they lack other qualities or skills with which to lay a claim to any superiority, whatever that might be.
t wasn’t long ago that there was an abundance/surplus of IT Professionals and now in 2011, there is a shortage. To address the specific issue about dual thinkers, it is important for us and for every Organisation to recognise that Technology is there to enable us do the things that we want to do more efficiently and that Technology would not work on its own. Hence the need to capture the knowledge, share it, train and develop those with the capability/potential and by that I mean across the board and not just focus on IT Specialists. That way, organisations will have a broad range of talent to draw upon. Manage the talent properly to retain them and have a support off-shore talent pool to complement in-house resources as well as engage in partnerships and collaborations.
I do believe that the answer is much more nuanced that the quoted article suggests (as are the answers to many a business questions tend to be).
One of the approaches I have seen in my career is for “buyer” companies to control what they outsource. One of the respondents touched on it by referring to “core competency”. That is the essence.
For example, outsourcing the execution (and management of execution) makes a whole bunch of sense, while retaining “why” & “what”. In other words, what “buyers” should be retaining is the bridge between business & technology, logical design & program management. Pretty much everything else can (& indeed, should) be right-sourced.
It is a complexe matter. I was asking the question some times ago about outsourcing and insourcing.
The first thing is that you have to remain the leader and the owner of your business. Part of your activities can be easier outsourced than others. But in any case, documentation is important to keep the knowledge in your company.
I see you share interesting content here, you can earn some additional cash, your blog has huge potential,
for the monetizing method, just search in google – K2 advices how to monetize a website