Outsourcing and the Networked Business

Last night, I attended the Association for Strategic Planning’s meeting at Suffolk University. The guest was Amit S. Mukherjee, author of The Spider’s Strategy: Creating Networks to Avert Crisis, Create Change, and Really Get Ahead. Amit gave a great talk showing the history of productivity leaps in business (he made the case that weapons manufacturers often lead the way). He, like us, sees the beginning of a new era of business roughly a decade ago.

So it was fun to open my file this morning for the next installment of excerpts from our book. The next topic is about the kind of shift that Amit described last night. And there is more to come in the coming days about what this means to managers. Maybe we can get him to comment along the way….

Today a lot of the work done for organizations is no longer done inside the organization by its own employees. Instead, partners with greater expertise or more efficient operations take on an aspect of your organization’s work. A big driver of this trend has been the differing costs of labor across the globe. During the past couple decades, countries like China grew their manufacturing base while information technology jobs went to countries like India. In intangible capital vocabulary, this converted internal human and structural capital into relationship capital.

Outsourcing has actually been around for a long time. In a course we delivered for mid-level information technology managers, we used an article about the outsourcing of IT jobs called, The End of Corporate Computing, by Nicholas Carr. Carr made an analogy between current trends in the IT market and the shift that occured when companies started purchasing their power from external suppliers in the early 20th century. One of the drivers of this shift was the efficient allocation of capacity. Carr points out that most corporate data centers use less than half the computing capacity of their computers. It’s not just the capacity; it is also about the work to maintain huge numbers of machines. This was an early call for the increased efficiency of what is now called cloud computing—solutions hosted on servers that can be managed more efficiently than can thousands of standalone personal computers.

All this is to say that the job of the manager has clearly migrated from being an internally-focused role that worked within a strict hierarchy to one that focuses on maximizing the effectiveness of the entire network of an operation. The makeup of your corporate knowledge factory and its many subsidiary networks can and will change over time. 

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

Relationship Capital and the Growing Importance of Partners

When thinking of relationship capital, most people default to customers, who obviously are fundamentally important to your business.

However, relationships with other kinds of partners are growing stronger and more important for the same reasons as those described yesterday for customers: increased outsourcing, increased linking of systems and the need for co-creation and innovation. I’ll talk about partnerships in value creation and those that provide support systems for your organization. Read more

Getting Paid for What You Know: Outsourcing and the Service Economy

It is common to hear our current economy referred to as a “service economy.” This is because the rise of the knowledge economy means that more and more value is packaged for customers in the form of services. Service companies include anyone doing work for you outside of your own organization. Another word for service companies are outsourcers. Most people tend to think of outsourcing in the context of outsourced manufacturing because of the increased use of production facilities in countries like China and India.

But we would invite you to define outsourcing more broadly. Read more