HR and Homeshoring

The Indian arm of the Hay Group has concluded that employee turnover costs low-end voice-based process firm 76% of their salary costs.  

Homeshoring in the US has been shown to significantly reduce attrition costs because it creates a better work environment for the employee.  I think the same could be true in India.

I have been reading several venture capital blogs recently.  One thing a savvy investor looks for when investing in start-ups is how the company plans to exploit "barriers to entry" in order prevent their business from being co-opted by competitors.  This is one of the most important issues any entrepreneur faces when starting out.  It's no good to have a great idea and excellent execution if a competitor can just come along and do the same thing easily.  Makes sense, right?

Well, this got me thinking about "barriers to entry" some more and I realized that for a long time established firms have used a major barrier to entry to fend off potential competition from entrepreneurs.  That barrier to entry is the massive capital investment usually required to field a workforce.  I call this the "Talent Acquisition and Deployment" barrier to entry.  A traditional workforce has significant fixed set up costs including office space, technology, HR and other administrative departments, etc, etc.  Also, there is a huge learning curve for simply learning how to manage a workforce, established firms have the advantage and the inertia on their side.  I think this may be the single biggest obstacle entrepreneurs face in starting a firm that will face competition from established companies.

Outsourcing in general and homeshoring in particular helps turn the table on the Establishment and gives entrepreneurs and edge.  Instead of being forced to re-invent the wheel and go through the various HR processes required to build a workforce, the entrepreneur's labor needs can be filled through well-structured outsourcing contracts. 

Furthermore, homeshoring is particularly advantageous in this regard because it avoids the nasty costs associated with leasing office space (usually one of the biggest and most "fixed" costs for entrepreneurs, esp. in urban areas).  By sourcing most of their labor requirements to home-based workers, the entrepreneur has a more flexible workforce and therefore less risk involved in her enterprise.  Less risk means a lower cost of capital, which is crucial in the beginning of a company.

 The bottom line in any for-profit enterprise is maximizing shareholder value.  Eventually a successful start-up will have to prove to investors (private or public) that their investment will earn an above average risk-adjusted rate of return.  When investors see a major line item in the the entrepreneurs income statement as behaving as essentially a fixed cost they realize the risk of the enterprise is much greater than it would be if that line item behaved in a way that varied more with revenue. 

Leasing office space, buying technology for employees, setting up the HR process all of these things essentially tie up capital.  Freeing this capital will make investors more likely to invest in start-ups.  This helps level the playing field for entrepreneurs.  

Despite the intertia demonstrated by so much of Corporate America, we are in the midst of a Revolution - specifically in the way humans relate, communicate, and cooperate. Technology is the most obvious aspect of this Revolution. However, it the success of the Revolution ultimately depends on the way humans manage themselves. As I discussed yesterday, tech solutions are nothing without pre-existing process management.

Today, Jeff Nolan at Venture Chronicles offers up Resilient as an example of what web 2.0 looks like when utilized for Business Process Management. When I checked out Resilient it was like seeing some of the inchoate ideas that have been floating around my head put together and actualized. Resilient seems in tune with the real concerns of anyone who has ever had to get work done and comply with regulations at the same time.

This type of software will be necessary if homeshoring is to become widespread simply because compliance obviously cannot be enforced through “Management By Walk Around” so commonly deployed in the Cubicle Farms of Corporate America.

Furthermore, it will be easier for home-based agents to learn and use because it’s so similar to widely used software like email and the internet. Therefore, employees will be in tune with the idea of working from home off the “web.” This familiarity is crucial to getting corporations to buy in to the idea of homeshoring. Technology we are familiar with in our lives outside of work is more easily integrated into our work lives than the cumbersome technology that passes for enterprise software today.

Here is a good article on economic globalization from a European point of view.

I largely agree with it, however, I would go astep further and propose that there is already a functioning economicmodel worth pursuing, namely a compromise between free-marketcapitalism and welfare statism. That alternative is to aggressivelypursue market policies in the labor market (allowing people to gethired and fired easily), while providing a broader, simpler, and moregenerous safety net. The labor market policies would greatly enhanceproductivity, while the broader welfare policies would assuage public fears that global capitalism will expose them to undue risks.

Homeshoring is one example among many where labor market flexibility definitely improves productivity. However, many people fear becoming home-based employees if it means exposing themselves to market discipline (in the form of pay for performance as opposed to salary+bonus). An expanded safety net will help allay these fears, thereby making homeshoring a more reasonable option for the less risk-adverse.

Because HRMS is not just an easy “plug and play” software option.

Today’s entry on SystematicHR describes how and why “preparation” is the key to successful implementation. The article concludes that “what you are before implementation is what you will be after implementation.” I agree wholeheartedly with this conclusion. Too often, companies that lack knowledge of their business processes try to compensate for that ignorance by looking to technology. However, the old saying “garbage in, garbage out” still applies.
Unfortunately, it has been my experience that many smaller, more entrepreneurial firms simply lack the Business Process Management know-how to properly to document their processes. This is one of the many reasons why I support the radical outsourcing of the entire HR function.

Most small and mid-sized firms simply cannot justify the expense of having a dedicated general business process consultant on staff, much less one dedicated to HR alone. Furthermore, process management is itself and ongoing process focused on continuous improvement. This makes contracting out the process documentation and management activities a difficult proposition since contracts by nature are more short-term oriented.

Economically, it makes more sense for firms to outsource the total HR package. This way they can take advantage of best-practices in HR process management. The HR outsourcing firm will possess the HR business process mapping skills necessary to handle any transition to new technology. New technology will never ceased to be developed. Firms that fail to take advantage of technology will face disadvantages on several fronts, not the least of which is employee rentention and satisfaction; both of which are directly related to quality and therefore are important to maximizing shareholder value.

Outsourcing can also increase the likelihood of transition to less labor-intensive HR practices because there will be less resistance from those HR bureaucrats fearful of being downsized. Outsourcing firms typically can afford to have more flexible labor policies and are more focused on demonstrating their value through continuous innovation.

All in all, I am doubtful that many small to mid-sized companies have the capacity to complete a successful HRMS transition, simply because they lack the process knowledge to do so. When we dig deeper we find that there is frequently little incentive for the HR departments in these firms to develop the necessary process knowledge base. However, there are large incentives for a Total HR outsourcing firm to develop the process mapping skills necessary to facilitate complete and harmonious HRMS transitions. Their competitive edge in the HRO market depends upon it.

This is especially relevant to spread of homeshoring because homeshoring by its very nature almost always requires a new or updated HRMS to be as successful as possible. The HRMSs at most of the companies I have worked for would do an abysmal job if used with a homeshored workforce.

This is an interesting area that definitely deserves more commentary, but I will end today’s post noting that the main lesson of econ 101 is that “people respond to incentives” and that there is a much greater incentive for a Total HRO firm to successfully manage its processes than their traditional HR department competitors.

There are several articles in the Washington Post about the gas price crisis: The editorial points out the futility of blaming "price gouging."  One article talks about the political implications.  However, columnist Dana Milbank hits the nail on the head when he writes that the obvious problem causing skyrocketing gas prices is "that Americans drive too much in too-big cars."
One "alternative" to oil is to simply stop using so much. At first, this idea seems impossible, but thanks to technology fewer and fewer workers absolutely have to commute into an actual office. If gas gets high enough that both employees and firms start seriously considering the massive costs of a brick and mortar office versus a virtual office.

This idea is catching on under the name of homeshoring, which is a slight variation on traditional telecommuting.

Thanks to the availability of broadband and the growing familiarity of the population with communications technology, the transition from a commuter/office based service economy to a home-based service economy would not be as difficult to pull off as it once was.

Since this is the case, we could very well witness the economy correcting itself as gas prices increase, people will take more serious steps to lessen their demand which will help put the brakes on increasing gas prices.

Across the nation commute times are getting longer. Sadly, this is happening as gas prices are soaring in response to natural reductions in supply and increases in demand. It is madness and there are no leaders among the bureaucrats of corporate america who are lifting a finger to anything about it.

Today’s Washington Post has an article describing how even manual laborers are now being forced to commute from the country-side to the DC Metro area: “an imbalance of housing and jobs produces commutes that stagger the imagination and confound the biological clock”

Having grown up in a small town in rural Virginia, I can tell you why workers there are forced to commute 4 hours a day. It is mainly due to a lack of an Information Age economic infrastructure. All of the white-collar job creation is taking place in metro areas. Thanks to Corporate America’s obsession with herding people into cubicle farms everyday that also means all of the economic infrastructure is also being created in metro areas. I know tons of white-collar professionals who would love to move to a rural area, but don’t for two reasons:

1) There are simply no jobs there

2) There is little to no social life for professionals there (this is a lesser reason and is really just a corollary to the first

Now the traditional solution (which obviously has not worked given that the problem is increasing) is to try to attract more offices to rural America. This hasn’t worked for the simple reason that there are not enough workers there, the professional talent pool is not dense enough. We are currently caught in a viscious cycle in which workers won’t move to underdeveloped areas because there are no jobs there and there are no jobs there because workers won’t move there.

Homeshoring offers a serious solution to this absurd predicament. With homeshoring, a real economic infrastructure can start to grow in rural areas. As more work is homeshored to lower cost rural areas, those areas will become more attractive living options for white-collar professionals. Of course, these professionals will provide a stimulus to the local economy - helping to create jobs and reducing the need for even manual laborers to make 4 hour commutes.

Of course, by eliminating the commuting needs of white-collar professionals and reducing the commutes of their blue-collar counterparts, homeshoring can help reduce our voracious appetite for gas.

The first step on learning how to properly homeshore is learning how to properly outsource. I am a strong believer in K.I.S.S.(Keep It Simple, Stupid!). So instead of re-inventing the world I just searched the 'net for the best AND simplest free advice on how to outsource. Here it is:

How to Outsource

For more details go to outsourcing-heaven.com 

Anyone who has done even a little google search on homeshoring or any other kind of outsourcing knoow that IDC has consistently been a source of cutting edge analysis and research.  Today they announced two new services:

"The BPO Buyer Trends and Outlook service will explore worldwide purchasing trends in the BPO services marketplace."

"The Worldwide Services Contracts Analysis: BPO service will examine BPO services deals from both a business process and a core industry perspective."

Interestingly, IDC's spokesperson mentions their research on homeshoring as an example of an emerging market trend:

"IDC's global BPO team, which includes 14 dedicated analysts, consistently provides a range of perspectives on key market trends and developments, as well as emerging opportunities, such as 'homeshoring' as a new sourcing option …." added Menzigian. "These insights help our clients gain competitive advantage in a very dynamic marketplace." [emphasis added]

If a major research outfit such as IDC is mentioning homeshoring in its press releases as a serious new sourcing option, one can be sure that homeshoring will make a major impact in the mainstream media in a matter of months. 

Then check out this book:

www.loseyourcommute.com/

When I get the time I will have to buy it and read it.  Several reputable leaders in telework endorse it.