Business, Politics, Economics, Leadership

A Personal (And Sometimes Provocative) Perspective on Issues and Events in the World of Transforming Business Performance

There seem to be only two topics people want to talk about today – the ‘financial crisis’ and the US Presidential election – but the general perspective on both is quite different from the outsourcing industry viewpoint.

The general public, inspired by sensationalist media coverage, are simply terrified that we face Armageddon in the financial markets, with a spillover impact into the broader economy that will have catastrophic results.  This is rapidly becoming a self-fulfilling fear, as consumers reign in their spending and dump luxury for utility – look at the automotive industry as an example, which just reported its lowest unit sales in fifteen years.  All over America (and to an increasing extent, all over the world), the sound of wallets snapping shut is convincing industries dependent on the consumer to shelve plans for expansion and look to ensuring their survival.  From a global perspective, the collapse in US consumer spending is a double whammy coming as it does hot on the heels of the Made-in-America sub-prime debt crisis.  While we may be at or close to the low point of domestic impact, the echoes of our current problems will be felt around the world for at least the next several years.

Contrast this general public viewpoint, if you will, with the outsourcing industry perspective:  recessionary forces are great news for the outsourcing industry in two ways.

First, a vast array of enterprises are under enormous pressure to reduce costs as a way of minimizing the impact of collapsing demand on their bottom line – and at this point in its maturity, outsourcing generally and IT outsourcing specifically are understood by most C-suite executives to be viable means of accelerating cost reduction initiatives.

Secondly, and perhaps more importantly for the industry, where customer demand had evolved towards outsourcing for a longer term focus on transformation in capability, it has suddenly reversed direction to a shorter term focus on cost management and predictability.  What this means, particularly in BPO, is that outsourcers who had been losing money writing transformational deals because of the difficulty of pricing transformational risk are back on firm ground pricing operational cost reduction – and sectors like HRO, which had been suffering as a result of some negative experiences with larger scale transformational deals, are starting to show signs of life again.

Now let’s take a quick look at the political scene.  Without a doubt after eight years of the current administration, America is looking for change – but in the usual urgent search for middle ground that characterizes elections here, the candidates are offering ‘change you can believe in’ or ‘change you can afford’ and look more and more like they are usurping the most effective messages from each others campaigns each day.  Outsourcing is one such area – could you, for example, tell me which side wants to keep American jobs in America, and which side deplores the unfair advantages enjoyed by offshore competitors?  Or, which side is more likely to enact legislation aimed at reducing the drain on the American economy that outsourcing represents?

Of course, readers of my earlier articles will recognize that our politicians, like the media, have a vested interest in maintaining their willful ignorance about the differences between outsourcing, offshoring and globalization so that they can capitalize on the reflexive xenophobia of the US electorate – but what is the reality, and what will the post-election world look like?

Once again, this is basically good news for the outsourcing industry.  Despite their rhetoric, most politicians (or their staffers) are smart enough to understand just how difficult it would be to draft, introduce, pass and enforce anti-outsourcing statutes aimed at regulating private sector behaviors – and ‘offshoring’ has been effectively excluded from public sector ‘privatization’ (outsourcing by another name) initiatives for years as a result of an unholy alliance between organized labor and the permanent establishment of government.  So from that perspective, all the manufactured controversy around outsourcing will fade away once it has served its political purpose.

However, the reality is that government too is operating in the economic environment established by the sub-prime crisis – and it will have a real impact on either party’s ability to fund the initiatives they are promising their voters.  The failure of large firms, and the failure to make a profit at many others, will reduce the national and local corporate income tax take – and the loss of jobs and the loss of bonuses in the financial sector, combined with the loss of secondary business that existed to serve the failed enterprises, will have a direct impact on the state and local tax take in some regions (think New York, for example).  Regardless of their distaste for it, government at all levels will be forced to re-evaluate the potential benefits of privatization as a means to get more for less, or push through tax hikes that will be deeply unpopular with the electorate and ensure that the administration executing them gets only a single term in office.

The bottom line: the financial crisis and the US election both, in their own ways, represent opportunities for the outsourcing industry – and the best thinkers in the industry are already recognizing that fact and adjusting their strategies accordingly.

Copyright ©2008 Mark H. Robinson All Rights Reserved