Platt Perspective on Business and Technology

Outsourcing as a business paradigm – 7

Posted in outsourcing and globalization by Timothy Platt on August 12, 2011

This is my seventh installment in a series on traditional outsourcing with its focus on sending out control and ownership of core capabilities (see Outsourcing and Globalization, postings 4-6 and 9-11.) So far I have discussed this form of outsourcing as a self-limiting business model that cannot be sustained long term and certainly as a globally significant practice. But from the beginning of this series, I have been writing with a second challenge in mind too, and one that can perhaps best be seen as representing a gathering and developing tidal wave of change: automation. And I start this posting by repeating a brief passage from Part 1 of this series:

• “…country A by and large comes to outsource some particular endogenous industry’s work in a particularly hands-on labor intensive area to the lower paid workforce of country B. The skills needed here do not create too much of an entrance barrier for workers in B to participate, gaining employment for themselves in the process. And factories and related support systems are developed in B where this work can take place. And as stated above, B starts to lift up, and both for what its workforce as a whole can do, and for what its workers expect in return, and with development of infrastructure that has made this outsourcing possible. With time, this particular work no longer becomes feasible as an A to B outsourcing per se so one of three things happen. B simply takes over this work with their new infrastructure and their now experienced workforce for it, in effect cutting out A as an unnecessary partner. This saves them money and affords them greater local control in the process. Or this work moves on to be outsourced to country C and the cycle repeats there. Or this type of work may simply become automated out of the workforce entirely …” (boldface emphasis added here in this repetition.)

Outsourcing, and certainly the type of traditional outsourcing I wrote of there may be self-limiting but automation is anything except that.

• Simplest, most readily algorithmically defined steps, processes and operations are easiest to automate, and have generally been automated first in any industry where that takes place.
• Automated systems can work without break, 24 hours a day and 7 days a week, and do not require any of the salary or benefits that personnel require. And automated systems, while expensive up-front can be depreciated for tax purposes with savings coming from that. Longer term expenses from these systems decrease where personnel expenses do not.
• Between up-front spending commitments and long term savings that automation can bring, operations that are automated are rarely if ever moved back into hands-on production again – this is a one way street.
• And the history of systems and production automation has consistently followed a trend of expansion, as to the range of processes and operations that automated systems can accurately and cost-effectively carry through on and in the range of areas where this is in fact done.

How many people still work on automotive assembly lines as spot welders? A couple of decades ago, this was all carried out by human hands but now this entire area of vehicle assembly is essentially fully automated. Quite simply, it was through vigorous automation of spot welding and a seemingly endless list of other assembly steps that Detroit auto makers became competitive again in the global market after loosing so much market share to countries like Japan and Korea.

I find myself thinking back to a series that I wrote as supplemental postings to my Guide to Effective Job Search and Career Development titled Discerning the 21st Century Workforce (see supplemental postings 22-25 for parts 1-4.) Automation is definitely not the only factor at work in creating barriers to employment and career development right now. But it is a factor at least partly responsible for this in many industries, and it is a factor that will simply gain in prominence as the 21st century proceeds.

I am going to follow up on this in future postings, but leave this topic here with a final thought. Automation can displace individual workers, and on a larger scale entire job categories. It can reshape entire industries and in effect render obsolete businesses and even entire categories of independent businesses. And both individuals as members of the workforce, and businesses are going to have to find new ways to accommodate the challenges that this form of change creates.

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