Thursday, July 02, 2009

The firm of the future

Warning: Idle rambling ahead.

Outsourcing is today, a nascent phenomena, atleast to the general public. Beyond the standard hulla-balloo that is heard in the media on outsourcing and the loss of jobs in the US, most are largely ignorant of its play.

What is interesting about outsourcing is its impact on the structure of the firm. For something that started out as a means to delegate fringe services (non 'core', as they used to be called some time back) to third parties as a cost and headache reduction measure, its interesting to see how widespread its impact is, today. From running entire IT setups to large parts of firms - I've even heard of new firms being setup from scratch in a totally outsourced manner - outsourcing is today an integral part of the structure of the firm.

In effect, outsourcing service providers are turning into service factories - that can take any proven business operation/process and industrialize it to run it faster, better and cheaper.

The only thing that's not yet been ever outsourced is the conceptualization or the ideation of the firm. Entrepreneurs still need to figure out business models and prove their worth - however, once they have done that to a reasonable extent, the operations and management can be very well parcelled out to an outsourcer.

So what will the firm of the future look like? One extreme view is that firms of the future (excluding, of course, the service provider firms themselves) will just consist of the ideators - who will conceptualize, design and initiate service offerings - and a bunch of service managers, who will govern delivery relationships with outsourcers. Therefore, a much leaner and more agile firm.

The other view is that outsourcing service providers will not be able to competitively perform every task that an internal firm environment can; that the marginal costs of outsourcing will someday catch up with its marginal benefits and stop it in its tracks. But nothing we know currently seems to point in this direction - if anything we have a long way to go till we get to that point of equalization.

It would be interesting though to see what ultimately happens - hopefully the options would play out in our lifetime. Or maybe, like the theories of contracting and expanding universes, we would just need to be content with conjectures.
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