Globalization’s Impact on Your Product
Out of last week’s discussion centered on Sony’s battery issues and the impact it could have on branding and customer relationships came a very interesting question from Mike a frequent commenter:
“In your opinion, do you feel these quality issues have anything to do with globalization of the workforce?”
My Take
Globalization and outsourcing absolutely has an impact on performance and reliability of a product. That’s not to say that a product cannot be a quality product when you introduce these factors just that the potential for issues goes up dramatically.
Some risks that globalization and outsourcing bring in:
Disparate systems: And I’m not just talking metric to the standard system conversion. We’re talking the back-end systems that each branch is utilizing, different production methods, quality control etc.
Methodologies: I’ve done enough training in my life to see the difficulty in introducing new methodologies to groups that haven’t been properly introduced to it (bought in). They may nod their heads, and get the right answers in the classroom environment but once back on the job all knowledge gleaned is quickly discarded. Different management styles also create additional barriers to change as well.
Cultural differences and values: This might just be the biggest issue that you’ll face. In the book Outliers Malcolm Gladwell shows how cultural differences increase the expectancy of an airplane crash exponentially, this is a lesson for any industry. How people treat authority, view their own autonomy, think critically, and address issues; are all directly impacted by their society and its social norms.
Specialization: Compartmentalization is not without risks, it breeds an environment where very few people have a clear view of the entire process. On top of that people who work on the smallest widget may not have a clear idea of how it will be implemented into the final good. This robs the entire system of the ability to leverage the human capital of those working throughout the entire chain of supply.
Distance and Logistics: The more barriers you put between a manager and their subordinants the worse the impact on the product. Management is all about communication and visibility into the work flow. No matter how good of a manager you are, without seeing the conditions of the plants and staying on top of those you delegate work to will cause an impact on the finished good.
Incentives: While the end goal may be to produce XYZ product outsourcing production leads to a variety of different goals and incentives for each player. All it takes is one link in the chain to prioritize a different way than the customer company is expecting and problems could result.
Conclusion
Go in with open eyes outsourcing is a risk to your brand. Anything from quality of materials, to working conditions, or even illegal activities from your partners can become a black mark against your brand. The reality is most companies that manufacture goods don’t have an option but to outsource, but through rigorous planning and management of your product as it flows through all stages of production will minimize the damage that could be done.
I was completely behind you until you say that companies have no option but to outsource. Do you have any research to support this opinion? In fact, I could post a number of academic studies that would contradict that opinion.
There are many reasons for outsourcing, and it would be impossible to make a generic statement on something that is situational. Even with these limitations, a vast majority of the organizations outsource because of the financial benefit. They do not have to pay the contract worker the same wages or benefits as the full-time employee. If they need to improve the stock price, they simply lay off a few contractors under the disguise of “your project is cancelled”. I would also reveal that I’m not a big fan of labor unions, I’m not a Democrat, and I do not support a socialist agenda. Still I ask, can we find a way to make a profit in business while still remembering there is a person involved?
Two interesting perspectives come from Greenleaf’s perspective on servant leadership and Sternberg’s concepts of wisdom and stewardship. Both of these theorists propose that companies will become more profitable when they start being better stewards of their resources, have a focus on social action, and treat their employees with respect.
How does this relate to outsourcing? If we adopt an attitude of stewardship, we would stop wasting resources. We would not develop a search (or decison) engine that is not needed. Companies would focus their resources on the items that are profitable and have a benefit to society. Relationships with vendors would change, and relationships within organizations would change. It would not matter if the person was outsourced, or insourced… they would truly be a partner. I have over 25 years experience, both as a contractor and as a full-time, and I can tell you that organizations treat their outsourced resources much differently. They are considered expendible, and at the first sign of financial difficulty, they are simply shown the door.
Planning and solid management are key to success with any project, but that is not the only thing that is needed. We need a fundamental organizational cultural change that balances the needs of the market with the benefits to society. This may seem like a European idea (or socialist) to some, but it is a proven business strategy. I could use examples such as Starbucks and ServiceMaster to support these claims.
Interesting post Nick. Thank You
Ok you’re right Mike lol. I have to remember to more carefully avoid absolutes.
What I meant to say:
With the pressures of competition many companies feel that there is no choice but to outsource to remain cost competitive.
There are advantages to outsourcing as well as drawbacks. It’s important that business owners go in without preconceptions and determine what level of outsourcing is needed for their products if any.
As for your take on the need for a fundamental orginizational cultural change I couldnt be more in agrement. When will the majority of businesses learn to balance their stockholders’ wealth with their stakeholders’ needs. Seeing companies beating earnings and still laying off 5,000 people (IBM) always drives me up the wall. Great reward for all those people who performed for you.
Completely agree, and (as you point out) all too often companies do not go into an outsourcing arrangement with their eyes open. They simply are looking to save X dollars off their SG&A expenses and do not consider the impact to the customer. Consulting services such as Gartner further complicate the situation. They suggest it because there is a personal interest to hire some of their consultants to get the job done.
Perhaps in a perfect world, we would return to the model of an organization employing all of their workforce, regardless of location. Yes that would eliminate the consulting services vendors (we call them pimps in the IT department) but it would give a greater reward to the actual people who are doing the job. I’ve also been pretty soured to the whole contracting side because too many friends have lost their jobs in this way.
Funny how the consulting vendors continue to get paid even when the individual consultant has been terminated…
One of the biggest problems with contracting I have found is a lack of feeling “connected”, I’m not sure I’d feel the same way as a consultant though.
Contracting feels more like someone is handing you tasks, whereas at least by my definition a consultant comes in and outlines changes, really driving a direction for the company.
I’d ask you the question though with layoffs, and most companies cutting back on perks even if they did employ everyone directly “do you honestly still think there is a sense of a reward and belonging/security?”
I’d argue people are tending towards being more jaded where maybe consulting offers a sense of ownership, purpose and reward their employment may not.