Yeah, Yeah, Yeah, So the Earth is Flat? What Next?

Now that pretty much everyone has tossed in their 2 cents on Thomas Friedman's new book, "The Earth is Flat," to the point where a few people are saying enough is enough, I'd like to try to introduce a measured dose of calm and clarity about outsourcing, and I'll take as an eminently worthy point of departure an op-ed from yesterday's WSJ.  The author, C. K. Prahalad, is a professor of "corporate strategy" at the University of Michigan's Ross School of Business, and the sanity of his observations can be summed up as: 

• Outsourcing has been going on for a long time, and companies including IBM, Accenture, and EDS built their businesses on it (i.e., taking over IT operations for F500 companies).
• Cowering in isolation (this applies to CEO's and managing partners as much as to Senators and members of Congress) is neither viable nor smart; getting out in front of changes in order to direct them is.   And most importantly:
• The only truly new variant in the long history of outsourcing is the ability to "fragment complex processes into their components...it is the granularity of the effort that can be outsourced."

In other words, while in the '80's and '90's the question whether to outsource (IT operations, say) was a board-level, all-or-nothing decision, today firms can experiment at separating, say, sales-transaction processing from the sales team in the field, or patent research from patent applications, or even preparation of PowerPoint slides from writing the presentation.

So what?, you may now be thinking—as I've joked before, unless you really want your children to grow up and be order clerks or secretaries for life, where's the threat?   The threat in an economic sense, of course, is to firms that don't take advantage of the opportunities presented by outsourcing, which surely begin with cost but, it's essential to understand, scarcely end there.   Too much of what is assumed to be an actual debate about outsourcing overlooks what firms must do, on the ground as it were, to make outsourcing work.  And it turns out those are all very hygienic, managerially speaking.

For example, because doing work remotely requires clear documentation, both the client and the vendor must be very clear about workflow processes, and in doing so they almost invariably find opportunities for improvement; legacy ways of working that don't make sense are suddenly exposed as such.

Another point intrinsic to thinking intelligently about outsourcing has gone missing, as well:  Countries do not compete; firms compete. 

Seeing matters this way changes the question.  "Should we ship US jobs overseas?" is the wrong question.  The right question is:  Given that talent markets in China and India are now as open to us as the talent markets in New York and LA, "How can my firm compete more effectively?" 

Actually, that's the first question:  How can you do what you're doing today faster, smarter, and cheaper?  The really interesting question is the next one:  "What else can we do that we've never been able to do at all?"

Isn't it a great time to be alive?