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Competing internationally is not just about wages. It is about total cost -- design, quality and customer satisfaction. It is about an organization's and the broader communities' legacy and the need to work with an integrated and balanced value proposition. It is about the future of the United States.
The outsourcing issue was highlighted by the recent visit to the United States of Chinese President Hu Jintao. The United States must carefully and thoroughly examine the role the private sector plays in supporting outsourcing that, month after month, saps the future energy from the American economy. In 2005 alone, the imbalance of payments with China was approximately half the U.S. national debt.
Supporting China
Simply put, China artificially maintains a set currency that provides goods and services to the United States at somewhere between 30 percent and 40 percent of their actual cost. With this hard currency funding from the United States, China is building its military and economic strength on the back of the U.S. consumer. While Americans pay more than $3 a gallon for gasoline, the Chinese government provides its people and industry gasoline at $0.40 a gallon, up recently from just $0.10 cents a gallon.
There are many ways to justify purchasing goods from China or other countries that have managed economies or are paying substandard wages. Such low-cost goods do increase the standard of living for the average American. Massive discount stores selling goods from China are a staple of the U.S. economy. The American public, too, is providing these underdeveloped countries with their first real chance to increase their standard of living -- raising incomes from a few dollars a day to a few dollars an hour. Our support for their development of a free enterprise system has already generated many multimillionaires and is resulting in a solid accumulation of capital wealth.
The export economy of China and other LCCs (low-cost countries) financed by the almighty American dollar and the seemingly insatiable desires of the American consumer is truly instrumental in improving the lives of people around the world, but at what cost? Is that justification enough to abandon U.S. manufacturing and much of our service base?
It is time that U.S. businesses challenge themselves and step up to the realities of the day. U.S. consumers as well as the government must demand goods and services from a level playing field.
Leveling the Playing Field
With that said, the central issue of outsourcing is the actual cost savings an organization can realize compared to its own domestic costs. Aside from the need for an internationally level playing field, the most important factor in containing outsourcing and meeting our obligations as trusted guardians of our individual organizations is the level of commitment we all make to ensure our organizations are both lean and running at a first-time 1.33 Cpk (Process Capability Index) quality level.
The basics of the outsourcing decision should be the result of a balance among performance, values, and a willingness to dedicate organizations to performance excellence. It is a matter of living by the ethos of a balanced value system that holds the legacy of U.S. employees, communities, suppliers, stockholders, and managers all in balanced accord.
It is easy to say that outsourcing is necessary to provide the maximum long-term security for American employees and organizations. Proponents of this view emphatically state that outsourcing is the only way costs can be cut to a point where their organization can remain competitive. In fact, this notion cannot even be tested until a company is able to compare the benefits of such decisions against the ingenuity and optimal productivity of the current organization.
Outsourcing should be a balance between values and profits. It is a balanced value system, a balanced acceptance of all constituents - the investors, executives, past and current workers, communities that have provided a lifestyle in which a corporate family has grown, and the suppliers who have dedicated themselves to U.S. development and growth. It is not about isolation. It is about fairness, equity, and doing the right thing.
To those who dismiss all this with the convenient answer that the focus is to maximize stockholder return, the question is Why is that so important, and to whom? Most increased market equity goes into the hands of those who trade the stock and, of course, the benefactors of personal stock options. Companies do not prosper day-to-day based on their stock prices. Many companies, however, post their stock price throughout their organizations and keep an updated quotation visible to all employees. Why not display per-unit product cost? Why not unit-by-unit quality ratings? Why not the number of domestic jobs? Why not an index of employees' standard of living? Why not the positive impact their payrolls are having on the local economy? Why not something that means something on a human basis?
Piling Up Costs
The United States is a country of mature businesses. Many of its most influential and powerful organizations have been around for more than 50 years, building level upon level of organizational structure in an effort to control and standardize their product and service offerings. Unfortunately, the net effect is to pile cost upon cost. The larger and more mature an organization, the greater the likelihood of extensive internal legacy costs - those costs created by past initiatives or from staff organizations to address a very specific need that is no longer needed. Add to that the multiple initiatives assembled by past administrations, and the result is a large volume of low-value partial processes that can virtually engulf the entire organization.
Most important, however, is the fact that many organizations have become so large that their product mix, their management processes and procedures, and the primary task of maintaining production, too, overwhelm them.
A company representative might say, "When we were smaller, we trained every operator on exactly how things worked. We had apprentice programs for every job ... and two-and three-month, high-value training programs for our new staff people. They used to spend a month working in the shop and then customer service, followed by a more general project for the last month. Now, however, it is possible to become a major manager without having any experience outside one's specialty."
This shift in experience and knowledge has had two very detrimental side effects. The first is in the quality arena. Today, there is not even general knowledge on most management teams regarding how to measure quality and performance variation. Even the term Cpk is foreign to most. The concepts of in control and capable are too often jargon that carries little of the passion required to ensure compliance.
High quality requires dedicated resources, a vast reduction in other low-value activity, and a full understanding that such quality levels literally provide the foundation of customer satisfaction, resource utilization, profitability, and a culture of discipline.
In addition to the pure requirement of production quality, there is a whole other challenge of ensuring that all supported processes are truly high-value.
Making a Commitment
Before outsourcing should even be considered, reconsider the base from which these decisions are made. It is time to examine every process, every management policy, every initiative, both past and present, and the complexity of the current product or service mix with a ready and willing commitment to establish true lean.
The tough decisions of embracing a 1.33 Cpk or even tighter Six Sigma quality objective, combined with significantly reducing any activity that does not directly contribute to an organization's balanced value system, will usually provide a valid economic challenge to the outsourcing decision.
Years ago, Michael Hammer, author of Reengineering the Organization, asserted that no company should undertake a massive organization redesign unless it was a matter of survival. For those who will lose their jobs to outsourcing and for those future jobs forever placed in the hands of other countries, it is survival time.
It is management's obligation to establish disciplined, high-value process excellence before sentencing their employees to the capital punishment of lost jobs, lost retirement, lost health care, and lost self-respect.
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