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Outsourced Forever

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I found a fascinating read: it’s a Forbes article by Stephen Denning called “Why Amazon can’t make the Kindle in the USA.” Denning looks at the impact of outsourcing on the creation of next generation businesses.

He quotes some interesting stats. Only 2.7% of US consumer spending in 2010 went to goods and services “Made in China.” And of every dollar spent on an item from China, $0.55 went to services produced in the USA.

Here’s his question: Since spending on Chinese goods is only a sliver of the US economy, there’s no problem, right?

And here’s the problem: that tiny sliver happens to be the sliver that matters. Decades of outsourcing manufacturing have left US industry without the means to invent the next generation of high-tech products key to its rebirth. The author asserts that once manufacturing is outsourced, process engineering expertise is lost. And when process engineering talent is gone, research talent focused on the next generation of technologies goes with it: “In the long term an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.”

Current thinking is that what’s happening is a normal evolution of business towards newer, higher-potential opportunities. That’s a mistake, because new, cutting-edge, high-tech products often depend on the knowledge base of an existing mature industry. Once you lose that knowledge base you lose the opportunity to be the home of hot new businesses tomorrow.

What I found particularly interesting in the article were prescriptions for a strong business future. The suggestions include: business leaders recommitting themselves to continuous innovation; accountants putting emphasis on how companies can add new value rather than just cut costs; investors rewarding companies that engage in continuous innovation; and governments playing a bigger role in protecting and promoting the government agencies that have fostered the kind of technologies that require patience and deep pocketbooks.

The author believes the role of management needs systemic change to meet these future challenges. That systemic change includes new roles such as: commitment to continuous innovation, adopting a different goal of delighting the customer, a different role in enabling teams, a different way of coordinating work through dynamic linking and a different communication style using horizontal conversations.

This type of systemic change will be essential…and not just for big business. Small businesses and start-ups are especially likely to represent a disruptive technology of tomorrow.

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