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Outsourcing Lessons From the World's Tallest Building!

By November 28, 2012

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I've said it before, and I'll say it again: outsourcing took a wrong turn when the financial crisis made firms focus on just cost savings. That's a strategy, but its a very short-term strategy. Moving work from where you get paid "X" dollars per hour to where you pay half of "X" (or less) it's clearly a benefit. Perhaps because it is such an obvious benefit, it blinds managers to much greater benefits.

Innovation, best practices and continuous improvement all offer far more than the one-time cost benefit benefit of outsourcing to a lower-cost location. How much bigger is innovation compared to lower cost labor? Let's compare. A lower-cost location might, initially, pay compensation that is only 10% of what you currently pay. Does that mean that you can reduce your cost by 90%? No, it doesn't. In order to get that 90% reduction, perhaps offshore, there are higher recruiting, training and management costs than you would have in your office. Also, offshore costs for equipment, space, electricity, Internet connections and other costs are often higher offshore than onshore. Your net cost reduction will probably range between 20% to 40%.

If your cost structure has been stuck at the same level for years, or has been rising, any cost reduction can be tempting. However, look at Sky City One, which hopes to claim the title of the tallest building in the world. The building is still in the planning stage, but they plan on completing the building in 3 monhts; compare this to the 72 months it took for today's tallest building. How will they get this phenomenal increase in speed? By putting together all the innovations learned in industrial production, and applying them to this project.

Not every project can innovate to this degree, but it is an indication of how much room there is for improvement, even on billion-dollar projects. What are you doing to innovate in outsourcing?

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