The Offshoring Leadership Dilemma

In a world that has gone mad for productivity in service-based industries, we are seeing more and more repeatable operations jobs either automated or sent to low cost service centres like India.  Now, as those low cost centres continue to grow and develop the capabilities of their workforce we are seeing more and more movement up the knowledge chain of these “low-cost” resources.

In the software industry the trend to oursourcing of junior development and QA tasks started several years ago.  Initially the trend was to write some specifications, ship them off to India, and then expect to receive back a solid working product on schedule and at a fraction of the cost that you would have paid had you done the work domestically.

Most companies quickly discovered that there was a gap in leadership and quality with the work that was done overseas and brought back the leadership and design tasks, leaving the somewhat repeatable tasks of coding and testing in these off-shore centres.  In general the most entry level or repeatable jobs went overseas leaving higher paying knowledge jobs back in North America.  In theory, the gap between the old “entry level” standard and the new higher “entry level” standard could be bridged through improvements in the higher education system so new graduates could be prepared for the new higher level jobs.

The major service providers in India and other major centres weren’t satisfied with only the lowest paying roles however, and over the past decade they have been focusing on improving the quality of their resources in some key knowledge based roles.  We are now seeing a trend to move more higher level work off-shore including Business Analysis, Project Management, and more senior design and development roles.  Certainly in the short term it makes fine business sense since these are higher cost roles domestically, so the savings to offshore is potentially significantly greater than the junior level roles that have already moved.

The dilemma I see though is the gap that has been created in the development of the basic knowledge and key leadership skills that are required to frame and centre the work locally.  With the lower level roles existing in house there was an achievable gap for new grads to jump to the entry level roles, and we continued to have a pipeline for employee development to help us build the leaders and managers of tomorrow.

As we have moved more and more of the junior roles out of the country we have started to see a couple of things happen that worry me:

  • Death of Entry Level Jobs
    Where there was tremendous optimism that the retirement of the boomers would create lots of new opportunity for the youth and new graduates today, more and more young graduates are finding less jobs available because as the boomers retire their roles are being sent to low cost centres or being filled by low cost global resourcing contracts.
  • Loss of Key SME
    As has been seen in several episodes over the last year or so including a massive system outage at RBS.  As more and more jobs are shipped to low cost centres the Subject Matter Experts (SME) required to keep things running is slowly disappearing.  Because entry level jobs are being moved rather than filled when older staff move on, organizations are slowly bleeding away the institutional knowledge that the need to keep some of their legacy systems alive.
  • Loss of Leadership Development/Birth of the Rock Star
    The gap between the knowledge that can be taught in a post-secondary setting and the experience and leadership skills needed to be effective in the new “entry level” roles has grown significantly and it has given rise to a new phenomenon – the “rock star”.  In the old reality many people took entry level jobs and then learned and developed within the systems and organizations they joined.  Because of the size of this developing resource pool there was significant opportunity for people to gain experience and learn key leadership skills so there was a large pool of candidates when more senior roles became available.  With so few true entry level roles now available, every organization is looking for strong leadership skills out of the gate, so the few lucky people who have somehow developed those skills early in life are highly sought after and begin to rise through organizations (and in salary) very quickly.  These “rock stars” can demand high salaries and be selective in their jobs because they have some of the base leadership skills, but in comparison to the past they are lacking significant experience to go with those skills so they are delivering very little relative value for their high salaries.  Without the roles that proved as a development ground for our future leaders we are slowly choking the supply of our most precious resource – really high quality leaders and senior employees with the experience to move our organizations forward.

To me, the dilemma is very similar to others facing our leaders – short term results are driving a behaviour that has the possibility of having an incredibly negative effect on our businesses in the future.  Offshoring today drives efficiency, saves money, and improves our short term financial (and ultimately, stock) performance.

On the other hand, offshoring some of our key employee development roles today chokes our supply of tomorrows strong leaders which will ultimately hurt long term performance.

As we build our teams today it is even more critical to consider where you are developing your next leaders, and consciously build them in a framework that focuses on building the key skills and experiences they need to be most effective as they grow.  Be careful not to rely on the pool of free agent “rock stars” – over time their performance is waning and their costs are increasing.  Much like in the NHL when teams entered the salary cap era, many General Managers found that they had been relying on a dying pool of star players who could be bought for top dollar and they had left their development systems (farm teams) to wither and die.  When they could no longer rely on the free agent market they were doomed to years of poor performance as they rebuilt and restocked the farm system.

I’m not opposed to outsourcing or offshoring – it makes great sense to leverage cost savings that are available.  I am however afraid that we are starting to swing the pendulum in a frightening direction that may leave us in a very vulnerable position in our organizations in the years to come.

About Tim Empringham, MBA
Tim Empringham is a passionate advocate for Innovation in organizations of all sizes as a mechanism to drive growth, create uncontested market space, create new customer value, and drive efficiency into the internal organization. His focus is on disruption of thinking and markets through integrative thinking, structured Innovation frameworks, and leadership development of Innovation and Change leaders within the organization.

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