To compete in global economy, move up food chain

Worried about the effects of global outsourcing, or offshoring, on your business? You’re not alone:

• Forrester Research projects 3.3 million professional positions moving offshore by 2015.
• The New York Times reports 100,000 tax returns were prepared overseas in 2004. (It’s not surprising when you consider that companies such as CCH, SurePrep and Xpitax, which process tax returns overseas, have sprouted up and are growing like dreaded creeping charley).
• Not even law firms are safe. Forrester predicts almost 80,000 legal jobs will be sent offshore by 2015.

With competition coming from not only the next county but also the next continent, what’s a service company to do?

“We have to do things differently. We are going to have to sort out what to keep, what to discard, what to adapt, what to adopt, where to redouble our efforts, and where to intensify our focus,” says Pulitzer Prize-winning author Thomas Friedman in his recent book on the realities of globalization, “The World is Flat.”

For me, Friedman’s advice translates into understanding your market and then quickly figuring out how your company will be able to best compete within that rapidly changing landscape.  It also means acting — decisively and without delay — to ensure that your organization still has a presence in the global marketplace even five years from now.

Where’s the market going?
In the area of information technology (IT) services, where my companies compete, the number of jobs in the United States has been growing since 2003 and is projected to grow another 3 percent by 2008.

But I’m not complacent. Because while the market is growing, offshoring still is taking dollars from the U.S. and moving IT business overseas. In fact, the technology research firm IDC predicts more than 5 percent of the U.S. information and technology services market for 2006 will be sent offshore.

It would be tempting to write off 5 percent of a very large and robust IT market and keep on with business as usual. Certainly that path would be easier and less strenuous for management and employees alike. But as most of us in business realize, the path of least resistance frequently leads to a dead end.

Consider the case of IBM. When Lou Gerstner took over the company as chairman in 1993, IBM was still a giant. It also was losing customers to more agile competitiors, shedding billions of dollars and was at risk of becoming just another great company laid to rest on the trash heap of obsolescence.

Find your niche
Gerstner was not willing to oversee the company’s demise. Instead, he forced change by making employees realize the company needed to sell solutions, not simply computers. He created a sense of urgency and forged a new corporate culture at IBM: one centered on the notion that “an extraordinary company could only be built on a critical mass of extraordinary people.”

Most of us are running organizations considerably smaller than IBM, and in many ways, that makes our jobs easier. With less bureaucracy, smaller companies can jump-start global adaptation strategies faster and with less resistance.

But before U.S. companies adapt to the realities of offshoring, we must think hard about the best ways to do that. At my company, we’ve decided to employ a combination of strategies that allow us to increase the value we bring to customers today while simultaneously preparing ourselves for the possible day when economics demand that most, or even all, of our software coding work must be performed by developers overseas.

Execute your strategy
To get you moving, consider some tactics my company is employing:

Move up the food chain.  We’re focusing on work that is harder to    offshore.  For our core competencies — consulting and training — we’re adding services around areas such as project management and business analysis.  This type of work is better done face-to-face with the customer.

If you can’t beat them, join them. On a limited basis, we’ve used an offshore provider to code out parts of our applications.  Using an offshore provider with a local presence in the Twin Cities also has given us a set of resources when we’ve had high volumes.  By using a partner, we pay a little more than we would with our own facility but we have a lot less risk and investment.

Stay at the top of your game. We’ve improved our processes to support more offshoring in the event that must become a larger part of our strategy. We’re doing things like stepping up our software requirement gathering procedures, creating a secure Web-based portal for access to code and project documents, and improving our approach for defining test procedures on the front end of the project. And there’s an upside even if we don’t go full-tilt in the direction of offshoring: These changes make us better and more efficient today.

The bottom line to remember, though, is that an offshore competitor is simply a competitor located really far away. And staying competitive, no matter where the competition is based, means staying focused on some core principles, such as hiring great people who over-deliver. (And if you make a mistake, having the fortitude to ask them to move on.)

Business owners must search for ways to be different in a way that matters to the customer.  These are the critical ways companies differentiate their brand.  For example, we give our consulting customers certificates for training offered through our training division.  Similar to Cyber Saver seats on an airline, we give our customer free training — worth thousands of dollars — and they take up seats in our training sessions that would have gone unused.

With a little creative thinking, your company can find unique ways to truly add value to your customers. Don’t delay.

No matter what time zone you or your competitors are operating in, the companies that win will be those that help their customers succeed. Figure out how to do that and your organization will be  a player well into this uncertain global future.