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Dec 06

How Technology Impacts Outsourcing and Service Businesses

Posted by: Steve Marr

Tagged in: Untagged 

Many people are alarmed by the increasing number of American service sector jobs that have been outsourced in recent years, and they complain that "someone should do something" to stop the trend. Individuals who call for some type of restriction or government intervention, however, miss the key point: Most outsourcing is driven by the rapid rate of change in the marketplace. Instead of complaining, we must assume responsibility for managing change in our businesses. As the prophet Ezra told the nation of Israel, "Arise! For this matter is your responsibility, . . . be courageous and act" (Ezra 10:4, NASB).


I would define outsourcing as any time a company transfers work to another firm-inside the U.S. or internationally-or shifts the work to "technology." When you consider that many more jobs are outsourced to technology than are transferred overseas, businesses owners ignore these trends at their own peril.

In a fluid, ever-changing economy, some jobs simply disappear while others are radically changed and others are transferred. For example, consider the workings of a gasoline station. Those of us old enough to remember "service stations" recall driving up to the pump and waiting for the attendant to pump the gas, wash our windows, check the oil and tire pressure, and take our payment. Today, most people pump their own gas, using a credit or debit card in the automatic gas pump to fill up and go. The entire process takes a minute or two, compared to the old system that could drag on for five or ten minutes.

As a result of these changes, tens of thousands of gas station jobs were lost and are gone forever. These jobs were outsourced to technology. Gas station owners benefited by lower costs and fewer employees to manage, and customers benefited through lower prices (this was before the recent run-up in the price of oil) and faster service, but at a cost of thousands of jobs.

A similar change took place in the airline industry with the introduction of automated check-in terminals, ticketless travel, and online reservations. Checking in for a flight used to require standing in line waiting for a ticket agent to shuffle your paperwork. Today, many of us go straight to the gate, increasing our convenience and decreasing the number of airline employees required to staff the terminal.

Given a chance, should the government have tried to "save" these jobs by mandating the use of gasoline service attendants and airline ticket agents? Clearly not. Technological advances-and their results-are part of the ebb and flow of a healthy economy. Business owners and employees must accept these changes as a fact of life, and adapt rather than complain.

Technology has made many services into commodities that are very difficult to differentiate from the competition. Many services that used to require specialized knowledge and skill have been transformed by advances in technology. For example, mortgage brokers used to manage countless details before a mortgage could be approved. Today, a few clicks on the Internet can bring together several financing offers, and some loans are even closed by mail. Given that most consumers see little difference between one mortgage company and another, speed, convenience, and competitive interest rates have become the determining factors. Once again, technology and automation have increased the convenience for consumers and kept prices down.

In the field of medicine, Dr. Paul Sangster the Northern Arizona Radiology sees many changes that affect the practice of radiology. "Today, images are captured electronically, and those images can be read anywhere," he says. Consequently, much of this work can easily be transferred between companies or outsourced overseas. Dr. Sangster foresees that insurance carriers may start requiring patients to use lower-cost imaging centers that have X-rays read by interns or even by overseas radiologists. Procedures such that require hands-on treatment are not at risk, but other elements of radiology are.

Technological changes can be beneficial when utilized effectively. For example, according to Dr. Sangster, one of the challenges in radiology is the need to provide service around-the-clock to cover emergencies. In the past, a radiologist would be on call to meet this need, creating increased costs and a strain on staffing. Paying a doctor to work an overnight shift to read maybe two X-rays is not productive or cost-effective. Dr. Sangster knows of a practice in an Arizona small town, that outsources the reading of images taken at night to Australia, rather than keep a staff member on duty.

Just as manufacturers have been forced to get lean and mean by examining every step in the manufacturing process and implementing efficiencies to remain sensitive and responsive to price competition, service providers today must realize that price and efficiency have become very important factors. To remain competitive, service providers must break down their processes step by step, and standardize wherever possible. Analyzing services in the same way as manufacturing may seem difficult, but in today's competitive marketplace, efficiency is king. Understanding this principle allows a business to keep its competitive edge.

Aside from maintaining your business, look at where you have a definite competitive edge, and exploit that advantage to build more business. For example, a large general medical practice developed a very effective system of submitting and managing insurance claims for patients. The practice used that expertise to set up an insurance submission and management service for other doctors, thereby increasing revenue.

A goad is a strong, sharp stick used to prod along an animal, such as an ox. In a business sense, goads are those "sharp sticks" that prompt us to action. As Jesus told Saul, "It is hard for you to kick against the goads" (Acts 26:14, NASB). Likewise, fighting technology changes in today's economy is like kicking against the goads. Far better to adapt, change, and continue to grow your business.

Steve Marr, Your Christian Business Coach

Featured in Business Reform Magazine

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