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Offshoring: Far From Home, Close to Home, and In Your Driveway Aspects

As far as business goes and in terms of how life is affected, I often think about macroeconomic history in three areas: 1) the Industrial Revolution, 2) the Information Technology Revolution, and 3) The Offshoring Revolution. Not necessarily the perfect model but a working model that highlights key periods delineating changes in the way things are produced.

Offshoring is a big subject that has ranged from simple areas to more complex areas like the outsourcing of innovation.

In the first two areas of revolution, the output of the United States (in terms of GDP) went up drastically. Some economists and statisticians have estimated a "productivity constant" (which directly relates the GDP to key macroeconomic factors) and have determined that substantial (non-linear) increases in the productivity constant (and hence, the GDP) have occurred due to these first two revolutions. (See the second link in this post for one example of how this was done for the IT Revolution.)

Now as for the offshoring revolution, Mike Nevens (ex-McKinsey blogging at the Sand Hill Group) highlights,

The proximate cause of the offshoring phenomenon and ensuing debate is the addition of 300 to 400 million highly educated workers to the global economy over the span of less than a decade.

That’s the "far from home" aspect. Remember that there are approximately 290 million people in the United States. Keep the numbers in perspective though – the US Department of Labour shows that only 2.5% of all job losses during the first quarter of 2004 were the result of offshoring.

Mike goes on to write:

Offshoring is simply the first step in an inevitable process as companies in highly competitive businesses seek to lower their costs by moving work to where it the value, quality, cost tradeoff is best. We are already seeing the second step: wages are rising in those countries that are the recipients of outsourcing and working conditions are improving as the demand for local workers rises …

That’s the "close to home" aspect. While the offshoring revolution may not yield the non-linear increase in the productivity constant like the other revolutions (the future lies before us), there is a significant shift in deployment of capital coming.

The "in your driveway" aspect is this … Mike continues:

I believe the third step is happening as well, but it is harder to see in the available data. The third step is stagnating or declining wages in the U.S. and other industrial economies.

Mike offers some advice that workers should make investments in education and skill building. They should make investments in areas that are less vulnerable to global market forces.

In any case, everyone needs to keep their eyes open and stay renewed. The offshoring revolution is here.

Continue reading “Offshoring: Far From Home, Close to Home, and In Your Driveway Aspects”

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Pre-Paid International Calling Card Rates Sustainable?

Skype is the rage these days for many technology-savvy folks. Get free international calls when dialing from Skype user to Skype user from your computer. If you need to dial from Skype to a person in Europe who is on a regular landline, you can get rates in the range of 1.7 cents (Euro) per minute.

But have you explored international calling cards lately? I had to explore this because of some telecom issues reaching my wife in France and some of my international clients.

I had to do a triple take on some of the rates. Calling Europe can cost from 1.6 cents to 0.8 cents per minute for some calls using landline to landline calling. On top of that, some of these cards have toll-free 800/8XX numbers that people can call to initiate a call. Now 800 numbers in many cases cost the subscribing company around 25 cents per call to do the number translation from 800 to real telephone number. Now with an $10 international calling card that can do like 1250+ minutes of call time, you do the math to see whether these companies should be able to do this profitably. I mean off-the-cuff, 20 calls costs about $5 of the $10 card just to pay for the setup of the 800 call. Perhaps the prepaid card providers are profitable, but I wonder if there are either back doors or house of cards related to this (presuming that the technology to trunk the call from the United States to points of presence [POPs] internationally is IP-based). I mean someone has to pay for the underlying infrastructure IP is riding over.

Granted when you call the customer support line for some of these cards, it sounds like it is an answering machine from the 70s in someone’s basement, but heck, the call sounds perfect and of digital quality.

Anyway, compare the pre-paid international calling card rates to the $10ish/month fee that some local carriers have for making international calls plus the 8.0 cents/minute fees they are charging. Are any of these fees really outrageous fees? They are almost borderline outrageous on the low side. I feel bad for the traditional telcom customer service reps – people tell me that the reps are simply shocked when they hear about the international calling card rates being brought by pre-paid providers. The only thing the reps can do is try to cross-sell you into other service (e.g., mobile, satellite dish) when people drop their international call service.

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22 Million iPod Users Can Get Lifestyle in General Motors Auto

Not to mention that they can get the podcasts too.

Bob Lutz points us to the direct interface from iPods to 2006 Pontiac Solstice radios with additional discussions at Autoblog. Regardless of the mechanics of the interface, that’s selling lifestyle.

If you didn’t know how widespread the iPod has gotten, Andrew Sullivan provides perspective on the "iWorld":

What was once an occasional musical diversion
became a compulsive obsession. Now I have my iTunes in my iMac for my
iPod in my iWorld. It’s Narcissus heaven: we’ve finally put the “i”
into Me.

And, like all addictive cults, it’s spreading. There are now
22m iPod owners in the United States and Apple is becoming a
mass-market company for the first time.

(Note: US Census Bureau indicates that the population of the state of New York and United States is estimated to be 19 million and 290 million respectively.)

Now not everyone has an iPod, but I can already see the iPods being given away by local dealers in car promotions.

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In Search of Better Ways to Make Sure Interviewing Is Not a “Sip Test”

My better half reports from assignment at the business school at INSEAD that Dr. Jack Soll made a clever analogy likening most interviewing processes to the Pepsi Challenge "Sip Test". I should be somewhat careful here to note that I’m not sure how far the analogy went, and I want to be careful here because academics live based on being rigorous in approach and analysis. Suffice it to say that my wife and I had the initial impression that Jack’s analogy was very clever (and pretty darn good too).

First I’ll bring readers up-to-date on the "Sip Test", which has been highlighted recently in Malcolm Gladwell’s book, "Blink". Scott Liben gets at it pretty well in a recent article:

I’m more than old enough to remember the commercial campaign a couple
of decades ago called the Pepsi Challenge. It capitalized on what
marketers call a "sip test," in which even committed Coke drinkers
chose Pepsi over their usual cola when they weren’t told which was
which. Even when the makers of Coke conducted their own such tests, a
majority preferred Pepsi. Rattled by the results, they launched New
Coke, a direct product of market research — and one of the most
notorious product flops of all time. 
 
The problem, in short:
The "sip test" or CLT (for Central Location Test) in which Pepsi always
prevailed turned out to have very little in common with the way buyers
of soft drinks actually consume such products on their own. Gladwell
quotes Carol Dollard, of Pepsi’s new-product development department,
who says "Sometimes a sip tastes good and a whole bottle
doesn’t. That’s why home-use tests give you the best information. The
user isn’t in an artificial setting. They are at home, sitting in front
of the TV, and the way they feel in that situation is the most
reflective of how they will behave when the product hits the market."

Now research on how well interviews correlate with actual job performance once a person has been hired has shown that there is "very little" to "some" correlation. A person that did well interviewing may either do well or poorly on the job. The probability of getting it right, is measureably better than a flip of a coin.

So is interviewing for a job basically like a sip test where a 2-hour interview process has little bearing on how well a person will do in the long-run as a hire? Very disheartening. To top that off with the fact that most people are not aware of interviewing biases that may happen between first round and second round interviews with respect to interviews and the use of screening versus selection processes (that is, you need to be part of the crowd and on par in one case but stand out in the other case), the story just gets worse.

The second article I cited above hints that having more structured interviewing processes works better.

In light of that, some tactics that I have used that seem to work well (where each may also have some issues in different contexts [too detailed to go into here though]) are:

  • establishing an arm-length relationship (a 1099 relationship) first with contract-to-hire terms if all goes well after a period of time
  • establishing a trial period in an employment agreement (with somewhat higher salary terms in the trial period) to compensate the contractor
  • having some joint problem solving tasks with the prospective hire, prior to an employment agreement being established

So on the surface, hiring good people matters a lot. Are we certain that our hiring process is not a sip test though?

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Yahoo Acquires Flickr … Plus Ask Jeeves Acquired

A lot of people reporting today on Yahoo’s acquisition of Flickr (I can hear the Yahoooooo jingle in my head as I type). Om Malik has got the latest on what rumored deal terms are. Other big technology news today is the acquisition of Ask Jeeves. See venture capitalist Fred Wilson for his quick take comparing the two deals.

Consolidation in the software space is continuing up and down the
chain. I expect much more to happen in 2005. It’s not just going to happen in the more mature
segments of the software market (like with Oracle and PeopleSoft). It’s also happening with technology
that hasn’t gotten beyond the early adopter phases (in part because
Internet business models are shifting all around due to blogging, news and PR, and advertising changes). It’s very timely that venture guys like Ed Sim are talking about what happens when competitors are acquired.

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Managerial Decision Making and Spiderman

I completed Malcolm Gladwell’s books, "Blink" and "The Tipping Point", and I plan to read three of Seth Godin’s marketing-oriented books next in order to keep my MBA fresh. My impression and initial investigations to date have me thinking that these books have not penetrated business schools very heavily yet. Perhaps some of these books should be recommended in business schools or parts included in packets. I gave very high-marks to "The Tipping Point". Malcolm Gladwell indicated to me via email that it’s probably too early yet to know if "The Tipping Point" will penetrate the business schools, but he is hoping so.

Having just finished "Blink", I wanted to share some thoughts related to subconscious decision-making and making decisions based on "gut feeling". This is an interesting topic in the management consulting field, which bases its core on fact-based decision making (as I’ve hinted here). Making decisions based on gut feel is generally frowned upon. I suppose this is also true for managers (non-consultants) within operating companies, but I would venture to say that since management consultants are independent third-parties to solving business problems, there is more polarization and social pressure for consultants to rely on facts (just like patients rely on medical doctors to rely on facts).

I’m not aware of any grand unification theory for balancing fact-based decision making with subconscious decision-making, but I’ll offer my working model for handling the balance (it may be more liberal than traditional consultants). I basically use what I call my "spider sense" to balance fact-based decision making.

Spider-sense is based on Stan Lee’s superhero, Spiderman, who gets a tingling sensation when something bad is about to happen to him.

So my general "algorithm" for decision-making (work in progress) is to:

  1. rely on facts
  2. check your gut feel or "spider-sense"
  3. if #1 and #2 are in alignment, great (i.e., the facts and spider-sense agree)
  4. if #1 and #2 are wildly out of alignment (contradict one another), better re-check the facts or re-factor what is going on around you
  5. on the margin (i.e., if #1 and #2 contradict, but they are not wildly out of alignment), if you have above moderate expertise in the subject matter, then weigh "spider-sense" more than the facts. Otherwise, try to seek out an expert (or godfather or mentor) to fill-out the tacit knowledge gap.

The other caveat to this is that one must constantly try to sharpen one’s spider senses. In business, some of this has to be done by focusing on vertical experiences within an industry sector. However, sharpening managerial decision making in a more general way is also important. In some business schools, this is covered in classes on organizational behavior (OB), and schools may have required OB courses to earn the MBA degree. OB training helps one to become more cognizant of biases that people have when processing information and making decisions. Whether biases are good or bad in a particular situation depends. Nevertheless, there are a ton of biases out there and OB classes help to give people a structure for thinking about these kinds of things.

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“Entrepreneurship” Against A Backdrop of Entrepreneurship

Ross Mayfield (CEO of Socialtext) has an excellent post on the Entrepreneur’s Sacrifice. The post hit me on a couple of levels because of the age-old saying, "the grass always looks greener on the other side."

On the one hand, I interact with a number of folks in larger organizations that from time to time wonder whether they should break out on their own. That type of discussion led me to write a post on entrepreneurship defined not by the type of company that one works for but by professional orientation on the job:

  • Entrepreneurship Defined As An Orientation: working and taking
    calculated risks to maximize the value of assets available as opposed
    to overprotecting assets and avoiding risks (trustee
    orientation/tendency).

I highlighted this perspective because of some stats also available in my original post:

As cited by Harvard Business School (HBS) professor Dr. John P. Kotler
in his book, "The New Rules" (1995) where he surveyed a portion of the
HBS Class of ’74, entrepreneurs and non-entrepreneurs are more alike
than they are different. Dr. Kotler does cite four areas where the
biggest exceptions bear out: independence, propensity to work hard,
need for autonomy, and need for security. If find it interesting to
note that biggest difference seemed to be in the area of security. For
entrepreneurs, only 2% needed security where for non-entrepreneurs the
figure was 18%. This is a 9X difference and should not be treated
lightly by those in large companies looking for a change or regretting
changes that they had not made to strike out on one’s own.

Ross also draws both sobering and optimistic pictures on managing relationships with one’s spouse in the context of an unseverable relationship with a venture. This is the second part about Ross’ post that hit me. Part of my reason in pursuing freelance management consulting (over a permanent job in another company say) was to give myself an opportunity to work with my wife more closely. Compared to the venture I was involved in prior, my current efforts have been a big improvement on that dimension. That said, it is also still a work in progress. In part, it has to do with our varying areas of expertise. But it also has to do with timing and getting the professional clocks to sync up.

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