Best-Sourcing and the Global Search for Talent
Graen and Grace (2015, p. 5) recently asserted that “Because of the ubiquity of the Internet, a wide variety of new markets have emerged and companies with the best talent have become the new ‘Wall Street stars’.” While their work focuses on what companies should be doing to address the needs of millennials who seek greater flexibility at work and seek better work/life balance than their parents, other researchers are studying how companies are looking beyond national boundaries and racing to attract talent from abroad (Lewin, Massini, & Peeters, 2009). Empirical data document the growing phenomena of strategic outsourcing and offshoring and their impact on innovation:
- • In 2005-2006, 26 % of offshore implementation involved product development, suggesting that firms were seeking innovation (Lewin et al., 2009). More often than not, these product development functions consisted of engineering, R&D, and product design (Manning, Massini, & Lewin, 2008).
- • A 2010 Bain & Company study of 2,000 companies over 10 years found that the motivation for outsourcing extended beyond the desire to cut costs. 85 % of companies that benefited from a sustainable growth in profits used outsourcing to bring in global talent, penetrate new emerging markets before competitors, introduce new innovative products before their competitors, and disrupt conventional business models (Heric & Singh, 2010).
- •In a study of 1,355 firms in 10 Eastern European and Central Asian economies, Boermans and Roelfsema (2015) found that outsourcing was associated with product innovation whereas exporting and FDI were related to patenting and spending on R&D.
Lewin et al. (2009) noted an interesting convergence of trends in the US labor market which has created the demand for global talent. A steady decline in the number of Americans graduating from US colleges with Master and PhD degrees in science and engineering, combined with the government’s decision to return to pre-1998 quotas for H1B visas, at a time when GDP was growing, created a shortage of needed skills, especially for the science and technology industries. In addition, graduates seemed to have been drawn to lucrative careers in the banking and consulting industries (Manning et al., 2008). This conclusion was confirmed by a 2011 survey finding that “Most American companies say a shortage of skilled domestic employees—not cost cutting—is the primary reason why they move some job functions overseas” (as described in “Shortage of Skilled,” 2011). Companies had no choice but to outsource advanced work to professionals in other countries. Among the benefits of such offshoring is improved flexibility with the potential for better service quality and better processes (Lewin, 2012). It also enhances a firm’s competitive advantage by giving it access to cross-border knowledge flows and foreign knowledge sources (Jensen & Pedersen, 2011).
Outsourcing and offshoring are likely to continue. Human cloud platforms are making it easier for firms to tap into a vast labor pool of online, skilled professionals. The top four most common work activities that involve such platforms are all high end: content generation, sales and marketing, design and optimization, and research and development (Kaganer, Carmel, Hirscheim, & Olsen, 2013). On the other hand, a rising concern for firms is the protection of patents, trademarks, designs, business processes, and software. As noted by Wiederhold, Gupta, and Neuhold (2010), with every outsourced job, intellectual property is transferred as well.” We expect to see firms become more and more sophisticated in the types of contracts signed and increased monitoring and enforcement of laws by international organizations such as the EU. Musteen and Ahsan (2013) suggest that the difficulty of enforcing contracts in many emerging economies coerces firms into building tighter and more trusting relationships, which leads to better information exchange, relational capabilities, and trust, developing the foundation of innovation.
Cappelli (2011) described two additional risks associated with outsourcing: reliability and responsiveness. Reliability refers to the timely arrival of raw materials and supplies, the age and condition of equipment, and employee performance. If components promised by outsourced suppliers are not delivered expeditiously with a predetermined level of quality, the manufacturing process will shut down; if the equipment being used by the outsourced supplier fails, delays will occur; if workers are dissatisfied or not skilled, they may go out on strike or detract from the quality of the final product or service. Responsiveness requires the firm to have the capability to meet successfully a sudden increase in demand or a change in the requirements of the product or service. It is difficult to redirect the activities of independent workers because terms of engagement have been agreed upon in advance via the contract. Companies are advised to develop contingency strategies and mitigation strategies to handle the two risks. One option is to use shorter term contracts with well-designed incentives (Su, Levina, & Ross, 2016). Contractor, Kumar, Kundu, and Pedersen (2010) suggest that “fine-slicing and organizational and geographical dispersion come at a cost in terms of increased complexity and coordination. At some point in time the increased management and coordination costs might exceed the benefits” (Contractor et al., 2010, p. 1425). Consequently, to retain an optimal level of benefits from best-sourcing for knowledge-based activities, firms need to develop superior management coordination, collaboration capabilities, and embed a culture of innovation.
Moreover, it is important to develop appropriate human resource management policies to maintain the job satisfaction and productivity of professionals who often times interact with others remotely in virtual global teams. In their study of business process outsourcing firms in the Philippines, Presbitero, Roxas, and Chadee (2016) found that HRM policies made a positive contribution to employee retention when there was a fit between employee values and organizational values. This suggests that in the recruitment process, HR specialists should screen job candidates with such survey instruments as the Allport-Vernon-Lindzey Study of Values (SOV) to ensure alignment of individual values with organizational values (Kopelman, Rovenpor, & Guan, 2003). Wickramsinghe (2015) found that talent engagement and job-related training positively affected the quality of service in offshore outsourcing firms in Sri Lanka. It is recommended, therefore, to match employee talent to the level of task difficulty and to provide training and development opportunities.
Lacity, Willcocks, and Rottman (2008) noted that interesting work was key to reducing turnover among Indian professionals:
These Indians were eager to develop new software for clients, to learn new skill sets, to work on emerging technologies, and to manage other people. They complained about performing monotonous maintenance on a client’s existing applications and merely coding and testing programs from predefined specifications—the bulk of what many Western clients send offshore. (Lacity et al., 2008, p. 22)
The job characteristic model ofHackman and Oldham (1976), consequently, can be used to ensure that workers are using different skills, work on complete projects from beginning to end, receive positive and negative feedback as a gauge to their performance, have some choices regarding how to complete their tasks, and are informed about the positive impact that their work has on clients. Regarding incentives for innovation, a survey conducted by Lacity and Willcocks (2014) found that clients and suppliers of outsourced services reported that mandatory productivity targets, innovation days, and gainsharing at the project-level, were most effective. The recent trend toward the offshoring of high-end, knowledge- based activities, such as innovation and strategic flexibility, requires that firms consider how cultural differences can affect interpersonal relationships and communication between partners (Clampit, Kedia, Fabian, & Gafney, 2015). As is often the case, managers of offshoring projects need to find the right balance between cultural differences and cultural complementarities. Clampit et al. (2015) argued that cultural differences can cause conflict and miscommunication and require training and new procedures but it can also foster creativity; cultural complementarities can contribute to offshoring satisfaction. The key is to match the culture to the specific offshoring stage.
Given the opportunities and challenges associated with outsourcing and offshoring, it is important to study best practices. Below, we consider in detail, best-sourcing in: (a) The Scientific Technical and Medical (STM) Content Industry and (b) The Pharmaceutical Research Industry. The outsourcing of content development and delivery has been a popular choice for organizations interested in reducing costs, improving speed to market, and reducing staff workloads since 2006 (Klingshirn & Wiseniewski, 2006). Individuals today, including physicians, academicians, lawyers, and students, rely on high quality content in the form of articles, reports, surveys, books, and empirical studies to inform them about cutting edge advances in their fields of interest. Inspired innovation is made possible through the dissemination of knowledge, but few content users really understand how the industry works. The STM Content Industry is part of a larger content information industry that delivers critical information to scientists, chemists, and engineers. It is chosen for additional analysis because outsourcing opportunities have made the industry more international, more inter-disciplinary and more collaborative. The Pharmaceutical Research Industry, especially in reference to the outsourcing of clinical trials, was chosen because of its importance to the health and well-being of individuals from around the world. A recent report by the Association of Clinical Research Organizations (Temkar, 2015) concluded that outsourced clinical trials are completed on average 30 % faster than when performed by sponsoring companies or in-house, resulting in an average time savings of 4-5 months (which can be critical for patients in need of urgent treatments).
Moreover, both sectors are excellent examples of industries that were in turmoil and had to reinvent themselves through innovation and change. A significant part of the innovation was delivered through a bestsourcing strategy that involved engaging global resources that contributed to knowledge and skills rather than focusing purely on lower cost resources and labor arbitrage. At the same time, best-sourcing helped both these industries to lower costs and release valuable assets to be refocused on technology, R&D, and innovation. These industries represent some of the highest end of best-sourcing work being performed through global resources. Both these industries also provide good illustrations in which firms built an eco-system of specialized partners where each partner brought best-in-class talent and technologies to certain part of their value chain. This helped companies distribute the cost of innovation. Each partner along the value chain was constantly innovating and this collectively helped the companies evolve and remain differentiated.
Access to the case studies was available from Quatrro Global Services, a global services company offering business and knowledge processing services to organizations seeking higher operational effectiveness, greater flexibility, and lower operating costs, headquartered in Gurgaon, India.
Fig. 7.1 Key stakeholders in STM industry