The second wave of outsourcing ensures higher efficiency than ever before

To today’s companies and entrepreneurs, the benefits of outsourcing are self-evident, but few know that this was no different in ancient times - writes Boris Kontseovski, the CEO of Intetics Inc. in Forbes magazine.

The concept of outsourcing has been around since the dawn of agriculture and various crafts which led to the emergence of cities. The prosperity of individuals largely depended on the division of labor and specialized activities. Even in those early days, this meant the employment of lightly qualified workforce to save on production costs.

As even the Greek philosopher Xenophon wrote in the 4th century BC: "There are places even where one man earns a living just by mending shoes, another by cutting them out, another just by sewing the uppers together, while there is another who performs none of these operations but assembles the parts."

This specialization ensured competition, leading to the refinement of craft, continuous quality improvement and the technical improvement of products, which later culminated in the industrial revolution.

However, in order to protect their commercial position, companies gradually took control over every aspect of the production including supply, manufacturing and human resources. Monopolistic capitalism would stop further efficiency advances, but thankfully, the competitive environment has been preserved due to the industrial revolutions and technology innovations.

The era of modern outsourcing begun in the 1980s when India and China started to offer large pools of cheap yet unqualified labor. This required additional investment from multinational companies in the field of training and management, yet the difference in labour costs still justified such an investment.

In those days, the main purpose of outsourcing used to be the reduction of costs, concentration in core competence and the achievement of better overall efficiency. Initially, outsourcing was limited to manufacturing, but the emerge of the internet in the 90s allowed for the outsourcing of white-collar services as well.

Proclaimed dead, yet still alive

Over the years, this huge pool of workers gained technological knowledge in many areas. Specialized expertise gradually became the top priority of providers as opposed to cost reduction. Additionally, providers adopted new models like shared services, multisourcing and offshore dedicated teams.

“At this point this point, a huge wave of outsourcing criticism had begun, as it was associated with mass job losses, worker insecurity and melting quality. Outsourcing became almost a public enemy and a new curse. Some even proclaimed it dead” - explains Kontseovski, while also adding that job losses due to innovation have always been present throughout the centuries: “Who now remembers such professors as a human alarm clock or a lamp lighter?”

Further job losses are expected to happen in the future - at least according to a recent McKinsey report. Robotic automation is predicted to cut as many as 800 million jobs worldwide by 2030, far more than can be attributed to outsourcing. On the other hand, AI-based automation is becoming an increasingly valuable asset, taking on a significant workload.

Far from being dead, outsourcing has numerous benefits today, from finding and engaging world-class talents in a shorter time to utilizing the wealth of knowledge that a wide pool of professionals has to offer. While this second wave of outsourcing continues to be cost-efficient, it primarily builds on the expertise of full-fledged specialists.

“At the end of the day, we have gotten better efficiency of professional services for less money. The key benefit of outsourcing is evolving from cost-cutting to process and labor optimization. It will continue to be one of the most important components of business strategy for decades to come” - concludes Kontseovski.