Is Corporate America Outsourcing Itself Out of Opportunities to Cultivate Future Leaders?
These days, companies aren’t questioning whether to outsource as much as they are pondering how best to go about it. Although still the proverbial hot potato fraught with workforce insecurities, political quagmires, and public relations sensitivities, outsourcing moved from “emerging trend” to “new reality” quite some time ago. And it isn’t just the traditional areas – manufacturing and more recently, IT. From global corporations looking for strategy and supply chain intelligence to investment banks and private equity firms seeking commercial due diligence support, the concept of outsourcing knowledge-based services, including market and investment research, has gained tremendous acceptance in recent years.
At the same time, there is a persistent stream of thought in some quarters that one downside of the outsourcing trend is its detrimental impact on an organization’s ability to cultivate its future leadership. The premise: By shifting work offshore, career opportunities for junior and mid-level employees that would otherwise serve as fertile training grounds for acquiring organizational management skills and leadership qualities are unduly sacrificed – thereby creating an inextricable management void down the road.
Having spent a decade in the professional services world and the last half decade in the outsourcing world, this got me to thinking – does outsourcing truly undermine an organization’s ability to breed future leaders?
It is certainly fair to say that, until relatively recently, clients of the big investment banks and consulting firms essentially paid for the critical on-the-job training of the recently graduated, recently hired MBAs assigned to their engagement or deal team. In many cases, these individuals had little or no direct work experience in the specific areas they were operating in. But clients were fine with this because of the Bigger Picture – the otherwise unattainable value the firms provided in the way of data gathering and analysis, scenario planning, and other advisory services. Simply put, there were few effective alternatives for the total value that such firms delivered.
Ten years later, the landscape has changed considerably. It no longer takes an expensive Wall Street firm or management consulting firm to amass mission critical data. Indeed, thanks to the Internet, reams of previously hard-to-compile information is available to financial professionals and business strategists alike. And in terms of the cost of brain power, the labor market has matured to where graduate-level analytical work can be retained for hundreds of dollars per day rather than thousands. Furthermore, technological advancements have made geographic boundaries largely obsolete from both a workforce and project management perspective. Organizations that provide knowledge outsourcing services have essentially tapped into these new realities to effectively deliver services that are comparable to the high-quality standards one would expect from their domestic professional services counterparts, but at a fraction of the cost. To quote Thomas Friedman, the world is, indeed, flat.
As a result, there’s been a paradigm shift, a forced de-coupling of the traditional value chain between research and advisory services. Clients are still willing to pay top dollar, but only for true high-end advisory work. It is no longer “Tell me what is happening within a market or industry”, but rather “Tell me what I should do about it”.
With clients now demanding greater value for their limited advisory budgets, many professional services firms are partnering with specialized providers, including The Smart Cube, to deliver much of the work once reserved for analysts, associates, and in a number of cases, even managers. For financial services clients, this work includes equity research support, initiating coverage reports and commercial due diligence research for live deals; for consulting firms, it is ‘plug and play’ research solutions to client engagements, helping to improve not only resource leverage but also project profitability.
Under this new model, the role of the junior resource (broadly defined) at a professional service firm has not become obsolete; but it has changed. No longer should they be chained to a desk working solely on basic market analysis work or fundamental company research. They will learn this aspect of their trade through their formal education as well as on the job training by working closely with their outsourced provider counterparts. But they will also see an acceleration of their total responsibilities. When outsource companies are leveraged for knowledge-based work, junior staff resources are freed to spend more of their time on client facilitation and management – the very high-end advisory services that are ultimately their firms’ core business.
The Smart Cube often works as partners to other professional service firms, operating much like extended team members. From our experience, the overall quality of the junior resources’ education improves under the outsourcing approach, particularly when they are sent to work side-by-side – physically – with the outsource company, as is often the case with our clients. Companies like ours that are dedicated researchers and data analysts can offer a quality level that is beyond that which any single company would invest in or be exposed to across its service industry. As a result, the clients’ junior staffers learn the obvious and obscure differences between good analyses and great analyses.
The fundamental question here is no different that that the old line manufacturing companies had to ask with the advent of low cost manufacturing in the 50’s and 60s. What am I best at? Put another way, does Nike have to physically make the shoes themselves to be a great shoe company?
In professional services, there is only one truism – the client is king. And today, the client is demanding better value. The most successful firms are those that recognize this and change their operating model with the times. Far from leading to a loss of critical training and leadership building opportunities, knowledge-based outsourcing will, in fact, unleash a new breed of advisor that is more attuned to the client’s issues and better able to deliver value in its most intrinsic form – by helping client’s creatively and cost effectively solve their most pressing problems.
And that is one paradigm shift I think we can all appreciate.