The Structure of the Blogosphere

Nicholas Carr writes about how the blogosphere is going to end up looking a lot like the old "mainstream media."

Of Outsourcing and Financial Performance

A recent LogicaCMG study investigates the correlation between the announcement of an outsourcing deal and a company's market valuation one month after the announcement. The findings show that companies that have announced an outsourcing deal perform on average 1.7 per cent higher in the stock markets benchmarked against others in their sector that have not announced outsourcing deals. In five out of seven sectors, companies that outsource outperform peers. In certain sectors, companies are realizing upwards of an 11 per cent increase in share value.

If markets are truly efficient and rational, I don't understand how the increase in share value accounts for the increased failure of outsourcing to meet business expectations. If outsourcing is adding cost, friction and complexity to organizational operations as the recent Deloitte study and others would have us believe, and thereby, failing to meet the fundamental value premise of increased efficiency at reduced costs of ownership, why are markets rewarding the decision to outsource? Perhaps, because markets believe that managers are not off base regarding the expected value of outsourcing and that failed outsourcing relationships are a result of management competencies that are a function of an individual organization. And these inefficiencies will eventually be punished when they reflect in poor operational performance.

Yet, this is an interesting result. It may result in organizations pursuing outsourcing, not as a means to increase efficiency, but as a part of herd behavior directed at increasing organizational legitimacy that is rewarded by the financial markets.

How Ivory is your Tower?

Amit Verma is not happy. In this post, he chastises the V.V. Giri Institute of Labor for its recent study of work conditions in BPO service centers at NOIDA, India. He views the article as an insult to the people who work in the BPO companies. His rationale is that a job at a service center is a rational choice of the BPO worker; however, the research study makes the offensive suggestion that BPO workers have made the wrong choices and that the researchers know better:

"I am a little tired of people equating BPO with the slave trade, and BPO workers with coolies...This kind of condescending, self-righteous mindset is, sadly, rather too prevalent these days...It is a pity that there are still regressive people around who, instead of wanting to expand those choices further, bemoan the improvements that have taken place. Ivory towers are a perfect environment for self-delusion."

I am not sure if Amit and acquiescent commentators on the subject are voting for no research on the plight of BPO workers or they disagree with the research findings and the exaggerated analogies or they just think the study is irrelevant in the context of macro benefits of BPO. His assumptions and exaggerated characterizations of the researchers and their objectives clouds the overall point of the post. First off, the workers at these centers were the respondents to the survey; so, given that they were the primary source of information for the research, I don't think it's offensive to them. Which also raises the questions whether these work conditions are indeed a choice of the BPO workers. When the workforce goes from not finding a job to finding one, it has not really expanded its choices, it has only limited its constraints, viz. unemployment. Choice is a more empowering concept and may be marked by a continuum of work conditions, employment practices and skill applications to choose from.

Finally, I think to conclude that the researchers at the V.V. Giri Institute are regressive individuals who bemoan the improvements that have taken place, oppose BPO and do not want to expand choices to the educated workforce is offensive to not only the researchers but the practice of research itself. I am not sure how Amit derives these conclusions from the study. If the findings are proven wrong, then the research is dubious at best. But, barring that, the study must be treated as an objective report that describes more than explains or predicts (of course, I do not agree with flagrant comparisons with slavery and the like). One cannot assume that they are the opinion of the researchers. For example, Levitt's famous study on the relationship between legalization of abortion and reduction in crime was not indicative of his personal opinion on the subject. He has indicated that the study actually changed his inclination to a predominantly pro-choice position.

Personally, I don't know enough of the study to comment on it. I am not in support of unionization of the workforce and I think the idea may be rejected by the workers themselves. But, the idea of an unhappy workforce is not a trivial one. Especially, when those disgruntled employees threaten to release sensitive customer data, etc. and have a potential adverse impact on firm competitiveness. Further, the percentage of the workforce at the periphery is also an indication of the industry's position in the value chain. As the industry moves up the value chain and begins to service more strategically important business processes, we may see an allied shift of the workforce from the periphery to the core.

Pranoy Manocha has a few credible comments on the post but I lost him at "Yes, all the 'India will be a superpower' believers will be proven correct". Obviously, I don't like characterizations.

Better Health care from Hynudai

My comments on Jane Galt's comments on Brad De Long's comments on Matthew Yglesias's slam of George Will's article on the unsustainability of the lavish wages and benefits that automakers receive will really not add much. Suffice to say it's interesting and I agree.

Don't know why I dignify this

Inquiring minds want to know if folks from India practice racism? So writes James McGovern, an erstwhile blogger at ITToolBox, an IT community that I blog at. And he sets out to answer the question with painstaking emphasis on the differences in employee diversity practices between a failed pizza eatery owned by a Laden-looking Sikh owner who was forced to shut shop and the consequent success of the fried-chicken store that hired locals. His argument does not even control for the quality of the fried chicken, perceptions of the proprietor, pricing policies, marketing - you get it. Its ironic that he makes an example of the racist nature of Indian companies by using racial affiliation of an individual (in this case, organization) to predict action. He alludes to the fact that Indian companies, by virtue of the fact that they are Indian, are likely to be racist.

And he presents absolutely no facts, just anecdotes. I know my response dignifies his post but not to the extent whereby I will present statistics to counter his post. No, I too will only present anecdotal evidence. A quick listing - Richard Garnick heads Wipro's North America operations, 15,000 Americans are working in the U.S.-based arms of more than 200 Indian companies, which have invested $500 million in their American operations, Stephen Pratt is the CEO of Infosys Consulting, and Francisco D'Souza is the COO of Cognizant Technologies. Also, in the post, there abounds confusion about caste-based hiring in India and discriminating hiring policies of Indian companies with operations outside India. And Govern picks the worst possible example. Infosys was one of the early companies to do away with the question on religion in India, thereby, setting a trend for employee hiring in the private sector.

Note that the post follows a criticism of several Indian bloggers on ITToolBox, who, Govern says present an imbalanced perspective of outsourcing - they only have positive things to say about it. He says that "these individuals know more than they are willing to share on this subject but have other motivations in not engaging the community in honest dialog on this topic." I think SecurityMonkey, another blogger on ITToolBox responds best in his post:

"I'm sorry, but is there a reason WHY they should HAVE to present a balanced perspective on ANYTHING? It's their blog, their words, their thoughts. They don't owe our Troll friend anything. If our Troll friend doesn't like what is being posted, maybe he should turn off his computer and get a hobby like gardening or doggy-poo shoveling... Yep, you're right. They are keeping all their knowledge to themselves because, well, it's their RIGHT TO DO SO. They don't have to spill everything in their blog if they don't have to. They aren't here seeking attention - they are here to share what they want, when they want. It would appear that our Troll friend has knowledge-envy."

Most of all, I disagree with the objective tone of the post. Far from presenting a balanced perspective (he said it!), Govern seems to have got it all wrong - the objective of blogging, the nature of outsourcing, the hiring practices of Indian firms and most important, the practice of racism.

We're all entitled to our opinions but we're not entitled to our facts.

Advantage Sans Manufacturing

Stan Shih, founder of Acer, the Taiwanese computer company, and its spinoffs Asustek Computer and BenQ, officially retired at the beginning of the year. And he has an ambitious vision for Taiwan. In a recent interview with the Asian edition of Fortune magazine, Shih talks about a Taiwan with no manufacturing, no farming, only R&D. And marketing, branding and services. The movement of Taiwan up the food chain seems reasonable in the wake of its relatively limited resources and knowledge competencies. The interview also highlighted another point. As each country develops and hones its competitive advantage, be it India in software resources, China in manufacturing, or Taiwan in engineering and innovation, perhaps competitive advantage will come from the integration of these resources. It is likely that boundaries between these countries will blur, and cooperation will give rise to networks of knowledge workers which develop supply chain solutions that span diverse organizations. E.g. Shih says he wants "IT" to stand for "India-Taiwan".

Look Who's Outsourcing

Its not just a corporate solution anymore. Money magazine has an article on how the overworked American is increasingly outsourcing chores, errands and family responsibilities. The principles are similar to business process outsourcing:

• If the function is non-core and can be serviced efficiently by a specialty service provider, outsource. E.g. clean basement
• If the function is core, in that it brings significant tangible/ intangible benefits, keep the function in-house. E.g. gardening and stopping to smell the roses.

Of course, effective outsourcing requires a thorough analysis of the true value of outsourcing as well as the operational risks and challenges. This includes an assessment of what your time is worth, your aptitude for the task, potential efficiency improvements and prevailing market prices.

The article states that the supplier market, including specialists and generalists, has seen a boom in the last decade - "You can pay Mike Solito of Auto Buyers Consultants $400 to $600 to buy you a car. He negotiates 40 to 60 car purchases a month on behalf of his clients, twice as many as two years ago. Then there are personal chefs, who number an estimated 9,000 in the U.S. today, up from 400 a decade ago." Generalists, or lifestyle concierges too are experiencing rapid growth in business. "Brooke Bechtold's Chicago client base, for which she does everything from buying gifts to hiring carpet cleaners, is growing 40% a year. There are even online helpers, who have their own group: the International Virtual Assistant Association".

Satisfaction metrics seem relatively more positive in this genre of outsourcing. While its reach and impact have extended to include a wide range of functions, it is too early to predict the sustainability of this market, given rapidly changing economic conditions. Is $3 for a thoughtful, handwritten card that will send your best wishes anywhere in the U.S., on time, well worth it? Or is it too soon to predict the sustainability of the "Thank You" notes market? These are interesting times at our service.

Must China Change?

Treasury Secretary John W. Snow, on a recent tour of the Sichuan province, urged China on Thursday to take lessons from the U.S. on how to "spend more, borrow more and save less". Daniel Gross, in a recent post, makes a vehement protest:

"...Yeah, that's exactly what we need: a billion more people in this world leveraging up homes they can't afford, to buy SUVs they can't afford to drive, to drive to the mall to buy merchandise they can't afford.

U.S. exports may never be competitive in the Chinese market. But if Snow is successful at encouraging the Chinese to binge on credit, the already-robust U.S. bankruptcy industry may find itself with a gigantic new market."

Snow is not alone. A recent article in the Economist states that the Communist Party leaders’ recent annual meeting on economic policy ended with word of a strategic shift: greater emphasis on redressing the inequality and social disruption that market reforms have left in their wake. The leaders believe that closing the inequality gap will help China develop domestic demand. The underlying rationale is that Chinese consumers, confident in the provision of basic amenities, affordable healthcare and education, will be more willing to spend more and save less. However, China is a long way from accomplishing these objectives. The savings rate is well over 50%, and the economic, financial and political reform required to support these objectives is a gradual process. So, to begin with, we're far cry from a billion people driving to the mall to buy merchandise they can't afford.

Further, while economists and politicians grapple with the how, the whether is not really in doubt. Contrary to what Gross says, it is their considered opinion that decreased dependence on the American consumer and stimulation of domestic demand are key to macro economic stability. Gross must consider what will take up the slack when America’s appetite for cheap goods falters, given the paucity of its national savings. What will come to the rescue in face of that nasty economic shock? Perhaps the answer is "encouraging the Chinese to binge on credit".

The Cult of the Amateur - Really?

Nicholas Carr has a post on the amateur nature of the collective consciousness of the Internet. Its ironic. He points to the slipshod quality of much of Wikipedia to highlight the flaws of the blogosphere including echolalia, tendency to reinforce rather than challenge and superficiality. Carr's argument hinges on the assumption that bloggers are amateurs who opine rather than report and cannot survive as sole proprietors on the Internet because they simply don't have the resources.

Not true. A recent article in the Wall Street Journal (Economists Join Blogging Frontier, Aug 11 2005) discusses how investors who've had access to the finest economic thinkers via research reports and print and television media are increasingly bookmarking weblogs. Economists - including prominent names from universities and even the Federal Reserve - have started blogging on a variety of economic issues ranging from rise in oil prices to the future of interest rates. Blogs cited by the article, including Econbrowser, Macroblog, Vox Baby are all penned by penned by professors and researchers well respected in their field. No amateurs these.

The real nature of the threat posed by the blogosphere is also reflected in the responses of the leading newspapers. Ethan Zuckerman looks at the link per thousand circulation scores for the leading newspapers in this post. The WSJ is the most anemic in the blogosphere while the New York Times is relatively more actively cited. These papers view this as a threat and are adopting various strategies including putting content behind paid firewalls and charging access to archives. There's not enough reliable data to test hypotheses on the shift in readership and whether blogging works as a complement or substitute to reporting. For research and consulting (e.g. Gartner/ IDC industry reports, stock analyses, etc), it may well become a substitute as thinkers and experienced professionals begin blogging. For the like of newspaper reporting, blogging can serve as a complement. It cannot be a source of objective opinion but its interactive and community focused nature allows for a diversity of opinions and debate. While watching the news one morning, my vehement friend quipped "I don't agree with what this guy says. It's so wrong. I want to there reporting on this too." That, to me, is a big part of the appeal of blogs.

India and China - in the same league?

Shankar Acharya doesn't think so. In this rediff article, the former Chief Economic Adviser to the Government of India argues why as an economy, India is simply not in China's league.

History - A Guide to the Future

Last week, I came across this fascinating online lecture by Carlota Perez on technological revolutions and techno-economic paradigms and their role in shaping industrial policy. She talks about how technological revolution happens in surges - every 40-60 years, we observe a technology revolution that changes paradigms of innovation and economic organization of activity. As the engines of growth shift, these revolutions bring explosive growth and significant structural change over time. She discusses two phases of a technological revolution - the "installation period" which is the time of learning, adaptation and creative destruction, and the "deployment period" which is the time of institutional recomposition and growth (the interim crash or burst of the bubble separates the two phases).

Perez states that we're not in the deployment period yet - investments are still focused on short-term gain, social systems continue to foster unstable environments, and "idle money" continues to focus on and inflate assets such as housing precluding demand expansion required to absorb excess supply being produced. Perez argues that these structural tensions can be overcome by industrial policy and requires the active attention of businesses and government.

I think there are signs that we may be in the deployment period. A lot remains to be done but organizations and individuals are adapting to the changes that the Internet as a generic tehnology and its subset of new, interrelated technologies have brought about. An IBM worldwide study on innovation, the Global Innovation Outlook found that innovation is occurring more rapidly, is driven by combinations of technologies, expertise, business models and policies, and is redefining the concept of intellectual property as "something to be invested, spread, even shared to reap a return, not tightly con-trolled and hoarded". Rapid change accompanied by smaller times to market and shorter cycles of market saturation have given rise to a new set of best practices and organizational principles. Outsourcing has enabled new loosely coupled, network organizational forms marked by interactive frontiers. The traditional view of inter-firm relationships as dyadic exchanges that prevailed in the era of mass production and transactional outsourcing are yielding to collaborative, enduring partnership forms that are fast redefining the rules of competition. And the change is not random or solely for short-term lucre. For example, firms are using outsourcing to enable business transformation. Although the average contract value has declined, the average contract length has risen reflecting organizational focus on tightly focused outsourcing arrangements to deliver long-term value. Firms are increasingly investing in these new principles of organization and making the allied change in business thought and leadership strategies.

Not all these organizations are satisfied with their efforts. But change is never easy and without disruptions. Perez's lecture sheds light on the nature of change and in a remote sense, on how to prepare for it. Perhaps, as the frequency of such change increases, industries and governments will be better prepared for the strategic transformation that technological revolutions bring and transition into the deployment period with relative ease. In my opinion, even anticipating the future and defining its nature is a big win.