Tuesday, March 18, 2014

Outsourcing Versus Innovation

For many businesses, innovation has been the key to growth and a prime vein for competitive advantage.  For one example, IBM’s range of inventions — including the magnetic stripe that is hard to remember living without, UPC price codes and laser eye surgery — all generated competitive advantages that allowed them to stay ahead of international competition that had the advantage of lower-priced labour.  IBM’s inventions, granted, generated efficiencies, but these innovations have been through the pursuit of creative problem-solving or throwing as many ideas out for consideration and development.

Over the last few decade, however, outsourcing seems to be a more prevalent strategy among larger firms instead than innovation. The immediate perception is that outsourcing is a matter than allows an organization to focus on its core products or services rather than preoccupying itself with functions that are less central to the organization's expertise or mission.  In many instances outsourcing occurred as jobs were created and added within the company due to innovation, but it has seemed over time that outsourcing has become a larger preoccupation in an effort to cut costs.

The perception is that such cost cutting measures will improve profit margins and satisfy one measure of efficiency, however, short-sighted that measure may be.  The cheap certitude that comes from achieving favourable financials for the current fiscal year or the next quarter, however, overlooks the advantages of investing regularly in terms of financial losses in risk and innovation.  The short-term variables that go into that measure of an organization's immediate success bears, however, little relation to the long-term success or health of that company.

A steady of infusion of new ideas to broaden a company's horizons and prospects is far more indicative of a company's future health than a current measure of profit and losses.  Choosing to measure a company's standing by this alone and making decisions based on achieving the temporal ideals is dangerous despite the perceived risk aversion that may motivate it.  Perhaps it is an argument that sounds familiar to those who are less than willing to laud CEOs for maximizing the bottom line for the benefit of stockholders instead of taking a longer-term view that contributes to the sustainability of the organizations beyond a relatively short period of time.  It seems that as a business grows, there is the risk of a stagnancy that occurs when bean-counting becomes a higher priority than entrepreneurship and innovation.  Those larger companies that look to cut costs by methods including outsourcing or more inclined to by a start-up after it has proven to be successful rather than cultivating a culture of risk and, consequently, innovation.  Such an approach to innovation -- one where new ideas or companies are bought for the successes they achieve rather than encouraging it within -- seems a lot like the thinking behind the assembling of a fantasy sports roster.  On paper it may look good, but the reality may be that the fit between the two organizations may not be as ideal as hoped.

Rather than reducing the exposure to risk (as they perceive it), businesses need to indulge in risk by supporting and nurturing innovation within the business.  Adopting a narrow view and over-specializing will ultimately truncate a business's vision, potential and ultimately its future. While Eastman Kodak sowed the seeds of its own demise by not properly valuing the innovations and patents it generated in the field of digital photography, other businesses make the mistake of not investing in the risk and failure cycle that comes with attempts at innovation but ultimately leads to discoveries that mesh with the goals, mission and infrastructure of the company.  Businesses need to maintain the appetite for risk and innovation that marked their launch rather than retreat to the false comfort of short-term measures of efficiency and striving to achieve standards that comply with those snap shots of a company's standing at a given moment and cutting costs as a means of achieving a false measure of health or efficiency instead of investing in innovation.

Friday, March 14, 2014

Human Scale and the Cog

Taken to its utmost extreme, efficiency has proven itself to be less than amenable to the human scale.  Frederick Taylor, a mechanical engineer cum management consultant, became famous in the late 19th century for introducing management methods that precisely pursued the maximization of efficiency.  His method, however, has become synonymous with the enmity for the human element in production processes.  Taylor's approach involved assessing procedures and processes to calibrate man, implement, workload and other inputs to determine the right combination to achieve the maximum efficiency.  The "success" of his management theories were bolstered in part by ensuring worker dissent was overlooked and ignoring other human elements that would normally get reasonable hearing in the workplace or other locale.  It concluded on the ideal workload a labourer could or ought to move with, say, each turn of the shovel, but it may not have taken into account repetitive movement injuries or other demands on the body and likely did not weigh boredom in the calculation either.

Charlie Chaplin in one of several iconic moments in 
Times, 1936
With the passing of the past 100 years, Taylorism has not aged well.  Taylorist calculations figured in determining the work efficiencies of the concentration camps during World War II and over time, Taylor's theories and methods met with the required checks and balances to ensure greater equity and fairness in the workplace rather than the assumption that the labourer was another inanimate variable in the production equation.

Still, the balance between human well-being and the pursuit of efficiency tilts too often away from human interests, especially as competition between countries increases and more industries or corporations take advantage of cheaper labour in less developed countries.

Whether it is a matter of created efficiencies that allow jobs to be completed by lower skilled employees or finding a location where legislation is more lenient the pursuit of efficiency does risk tilting away from the needs of human dignity and often well-being as well.  That was the case in the sweatshops of Bangladesh in April 2013, where the pursuit of cost effectiveness in clothing manufacturing was mediated enough middle men to distance the brands, corporations and consumers from the labour and working conditions.  That is just the most graphic instance of this and there are instances of sweatshop conditions, use of child labour and labour disputes against First World manufacturers simmering on the back pages to indicate that the pursuit of cost effectiveness, mislabelled as efficiency, often leads to strife or the most dire of inclusions on the ledger sheet.

There ought to be a suspicion that efficiency has been achieved at a high and hidden cost, but the conscience is often ignored in favour of the numbers when the results are, indeed, to good to be true. As the pressures inherent with the pursuit of profit margins, larger corporations pressure their suppliers and contractors to work within smaller and smaller profit margins while being audited as well for their labour standards.  The profit margins win out all too often and the basic threat to the human scale is to overlook the limit of not what a person or group of factory workers can or ought to be capable of, but rather what can reasonably and fairly asked of them on a day in and day out basis?  As with Taylorist efficiencies in the later 19th century, the glowing outcomes end up being the result of coercion rather than an arrangement the respects the limits of people are capable of and hide the circumstances of their "achievement."

Thursday, March 13, 2014

Where Two or More Are Gathered There Will Be No Agreement on Efficiency

When looking to address so many of the problems that we -- individually or collectively -- grapple with, efficiency is often on the short list of ways to make a tough situation better.  When we examine environmental problems, we look to various forms of efficiency to make better use of the resources that are dwindling away.  When looking at making a day more productive, with look for better strategies to manage time more efficiently.  In sports, teams are looking more refined and erudite statistics to determine the combinations of players or strategies that foster the optimum offensive and defensive efficiencies required to improve the chances of victory on a regular basis.

Efficiency probably has a unique and undue command over our imaginations and aspirations.  One problem with the word "efficiency" is the blind faith that achieving it is the vital stepping stone toward achievement, gaining a competitive advantage or benefiting ourselves or the common good in some way.  The biggest problem with our over-reliance on efficiency as a solution or point of discussion is that it is far more subjective a variable than we care to acknowledge.  It is not objective, simply because the resource people maybe striving to optimize use of - be it time, money, energy, water or any other factor - varies from one person to the next.

Apart from the variations in what we chose to use efficiently, there are too many occasions where we narrow the number of inputs that go into the operation of a system.  The time and energy that may go into achieving the perceived efficiency and the time period that it takes to replenish or recover from that period of efficiency.  If we are looking at a battery for instance do we calculated the time spent recharging the battery and the amount of direct current the recharger requires?  We probably look exclusively at the amount of time that we are able to use that battery and disregard other aspects or calculations that would go into a broader calculation of the efficiency that encompasses a broader range of efficiency.

Far too often, the definitions of efficiency that are used are too narrow and occasionally (frequently?) border on self-serving.  The efficiency various manufacturers may attribute to their products would be the most obvious instances of this, but there are instances where we ourselves may look at time efficiencies over energy efficiencies.  Such calculations would figure into the decision to drive 15 km to a discount outlet to buy products in bulk, rather than walking 750m to a nearby store to buy the same product though at a higher price.  One may choose to ignore the likelihood that part of the bulk purchase would be discarded and settle on the savings per unit as the true measure of the efficiency of the purchase.

A great deal of delusion can be hidden in the use of the word efficiency and much of it is willful, whether individuals use it as a rationalization or advertisers use it with their clients' interests foremost in mind.

Given the amount of significance we attribute to the word, we ought to apply it with a greater sense of precision rather than play shell games with it.