Outsourcing, offshoring, offshore outsourcing, out-tasking.

If you haven't been paying attention for the last 10 years, the hottest trend in US business has been to relocate work to countries like the Philippines, India, and China.  Outsourcing allows companies to focus on their core operations, while delegating all non-core business functions such as product design, software engineering, research, and decent customer service to cheaper labor markets.  The business benefit to outsourcing is further compounded by the fact that highly educated foreign workers are eager and willing to work these low wage jobs so that they can lead their emerging third world economy into a bright new future which promises an increased capacity to purchase American products.

The common term for this fantastic business phenomenon may be outsourcing, but let's just call it what it is:

Outstanding!

Here we are now.  We've been at this outsourcing thing for what seems like ages.  Our best corporations have been very busy for the past decade whittling down domestic-based services and products to that which is most essential and core to a particular business, or what I like to call the 3 Ms: Management, Marketing, and Money.  Corporations which chose to take the outsourcing path are left with a highly tuned race-car of a business, better adapted to an ever-changing marketplace where a commodity workforce can be quickly ramped up, down, or sideways to produce record breaking profits for corporate executives.

But is outsourcing enough?  Isn't there more that can be done?


Inevitably, a business will discover that after outsourcing everything conceivable, there remain a few specific roles that are critical for the day to day operation and productivity of the company.  When these remaining roles are not directly coupled with one of the 3 Ms, their elimination effectively becomes the 'last mile' in terms of maximizing efficiency and profitability.  This has remained the critical failing of outsourcing as envisioned by the business men and women of the 1990s.

This is 2006, though, and from the research and knowledge pouring from our nation's most exceptional educational institutions, which provide the best MBA programs available in the world, we now have a solution to the last mile.

The solution is called undersourcing and it's changing the face of business as we know it.

Undersourcing, while complicated in the details, can be easily explained as the management and tuning of resources, benefits, and employment demand in order to maximize short-term productivity, minimize the long term increase in cost of domestic resources, while simultaneously fostering an environment which is conducive to high turn over and reduced benefit pay-out.

Unlike the simplicity of outsourcing's effective and simple "not management? outsource it!" philosophy, undersourcing requires the in-depth knowledge and extensive tuning of specific critical factors such as job dissatisfaction, employee stress, and burn-out rate.  Interestingly enough, those same businesses that have completed an extensive outsourcing initiative will find themselves auspiciously tuned for the coming undersourcing movement.  This is primarily due to the incredibly high ratio of upper managers to domestic employees that are typical of a properly outsourced business operation.

Here's how it works:

Consider a typical modern company that makes widgets.  New widget models are designed in Bangalore, manufactured in Beijing and shipped the world over to happy consumers in emerging markets.  For the sake of discussion, lets assume that some of those consumers are not quite so happy due to inevitable product flaws, so they call your customer service center based out of Manila and complain until they realize they are getting nowhere in the maze of menus, elevator music, and compassionate yet unhelpful representatives.  So far, so good.  One of the problems, though, is that to effectively manage this particular global operation, extensive IT resources need to be employed.  While some IT tasks can (and will) be sent off-shore, outsourcing becomes an issue for location dependant and time sensitive network deployment and maintenance operations.

This is where undersourcing comes into the equation.  Instead of employing enough IT staff to effectively handle the operations, the company will employ, perhaps, half as many.  This can either be accomplished during economic downswings by rounds of layoffs, or in an ideal situation, more organically as a company grows.  This can easily be accomplished by not hiring while simultaneously increasing the day-to-day job demands on the current staff.

Unfortunately, successfully running a half staffed operation requires exceptional employees that are capable of managing the increased workload.  The problem with exceptional employee resources is that they can be more costly, especially in the long term due to standard of living wage adjustments, employer contributions to a 401k plan, and an increase in insurance costs due to illnesses and injuries which result, in part, from increased job stress.  Undersourcing, thankfully, can help here as well.

Instead of paying higher-than-average wages, an undersourcing company will instead put thought into a marginal, but confusingly eye-appealing benefit plan.  This plan, in its most optimal form, will offer substantial employer-based 401k contributions to match a microscopic percentage of employee contributions along with a maximally lengthened vesting schedule.  This is rounded off with an industry standard health package, touted by employers as the best in the industry (which it is, because everyone is doing the same thing).  Additionally, by adjusting the amount of time it takes to meet the eligibility requirements for health and other benefits, the company can effectively hire benefitless employees for the first few months of their employment.

So far, our widget company has managed, in the short term, to reduce the cost of necessary domestic employees.  Inevitably, the question that arises from the undersourcing discussion is how this can be sustained long-term.  At some point, no matter how bad your benefits package is, employees will become eligible and force an employer 401k contribution, or injure themselves moving heavy equipment at the end of a 16 hour day, requiring a hospital visit and an insurance pay-out.  Additionally, it could be argued that overtasked, overworked, underpaid employees will  result in decreased productivity.  And what happens when an employee sticks around for 6 years and some of their employer 401k contributions vest?

Conventional pre-undersourcing business theory would demand premature layoffs to resolve these problems.  The problem with this style of resource management, however, is that it typically means an employer will have to pay a severance package, however meager, to any employees it lets go.  With undersourcing, however, the rules have changed.  By undersourcing its IT resources, our example widget company has created a work environment that is extremely stressful and completely optimized to minimize the voluntary long-term employment of its IT workers.  By encouraging employees to leave via stress factors, our widget company is able to get the high output, high energy productivity from a new-hire resource, while simultaneously maximizing their burn-out potential.  This causes resources to leave, of their own volition, before benefit vesting, wage adjustments, and depressed productivity even become factors.  Additionally, an employee that quits is an employee that doesn't get severance.  It's easy to see that undersourcing provides us with a win-win scenario.

How this all plays out over the next several years will ultimately depend on the skills and adaptability of America's next generation of bright and talented young business managers and executives.

When the dust settles, I think that we'll find that undersourcing equals understanding.  Understanding your core business, understanding what roles are best undersourced, and understanding how best to manage the numerous resource and job stress factors to increase short term productivity and eliminate long term employment.

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