Archive for March, 2009

Outsourcing and the reasonable re-Distribution of Wealth

 

One of the most interesting dilemmas faced by business leaders in the world, is whether or not to outsource. They have a responsibility to stakeholders to use invested money wisely, to remain competive, to generate a profit and accordingly to make wise decisions. Companies like GM use local resources and find themselves uncompetitive, at least in part, due to high labour costs. At the same time, CEOs are criticized when they outsource services to other countries in order to reduce costs and consumers are criticized for purchasing foreign products.

To be fair, even on a very small scale, many company owners outsource services. By using a bidding process on sites such as e-lance, individuals from any country bid on the work. If you want a web-site developed or some specialized software, it’s generally much less expensive to have the job done by a developer in India than one in North America. If we choose not to outsource, we soon find ourselves uncompetitive and out of business, thereby loosing any opportunity we may have had to employ people locally.

Sustainability implies two concepts which at first may appear contradictory.

The first is the encouragement to use local resources as much as possible. While this is partly concerned with limiting the transportation of goods, it also encourages hiring of local skills and supporting local communities. The obvious question is, why would we do this when someone else is willing to do the job for less and can make the company more competitive?

A second concept in Sustainability is to encourage equity, education and a reasonable standard of living for people everywhere. This implies that people everywhere need to be employed and, from this perspective, outsourcing may be considered is a good thing.

Outsourcing has short term, mid-term and long term consequences.

The short term is that the wealthy nations benefit from having high salaries combined with a low cost of goods and services. As such they enjoy a very high standard of living. Poorer nations benefit as well because as we are paying for these goods and services with dollars that are unavailable from their local economies and their economies, as a result, become more affluent. As they say, a rising tide lifts all boats (hopefully). Outsourcing helps to build the overall wealth of less affluent nations.

The mid-term consequence is great for the less affluent nations and not so rosy for the more affluent nations. As jobs are outsourced, the skills, expertise and manufacturing capability move to the less affluent nations. While the costs remain low for goods and services, the number of low value jobs disappears and people are less able to afford these goods and services. Trade unions representing low value jobs have traditionally looked to set their standards of living based on comparing salaries with other higher value jobs. However, realistically they need to begin taking their queue from lower cost countries who are able to provide the same services if they wish to have any long term viability for their workers. This will undoubtedly be a very painful adjustment for workers that have grown accustom to high salaries, benefits and pensions. But in a world economy, it is not reasonable to expect assembly line workers in one country to live in comfort while in another country to barely scrape by. The only reasonable long term outcome is that equal value workers must have an equivalent standard of living. Similarly higher value jobs are also coming under attack. Outsourcing of software was a start. As we move forward, Business Process Management (BPM) and Law Services are beginning to face similar challenges. And, while this mid-term adjustment begins to takes place, the long term prospects, are not quite so bleak.

In India, for example, one of the unintended consequence of outsourcing is high turnover of employees. Companies scrambling to improve their services and gain market share from the west, need qualified and experience employees. There is tremendous competition for highly qualified employees between companies which often has employees jumping from job to job in order to benefit from higher and higher salary offers. While their salaries are still relatively low compared to North American standards, they are at least within the same order of magnitude. And as the salaries continue to increase, their competitiveness will decrease. This trend is ultimately the great equalizer.

As the economies become more affluent, they are also more able to be self-sustaining. In other words, they rely more on their own purchasing power and sell to their own local economy.

The only reasonable expectation in the long term, is that the standard of living for equivalent jobs around the world should begin to equalize.

This is still perhaps a long way off and, in the short term, a very scary outlook for factory workers in North America, knowing that the standard of living of their counterparts in other countries is far less than desirable. On the other hand, it provides an incentive for each of us to become more educated, more productive and to provide a higher value of service, rather than being satisfied with providing the lowest possible service while feeling entitled to high benefits. We have become lax in our expectations of ourselves.

Outsourcing organizations will continue to displace our local high paid employees with lower cost employees as long as we provide equivalent value at higher costs.

It is true that some of the value we provide is higher simply due the fact that we are local which generally makes for a better service. However, the sooner we accept the reality that many services can be displaced, the sooner we will begin to strive to become truly competitive again. And we need to be vigilant because other countries are only becoming stronger and will continue to threaten our ability to compete. The outsourcing of Software to India, as an example, sees a nation of highly intelligent people, which is growing at the rate of 25 million per year, some percentage of which are being specifically trained in highly specialized universities which teach students about topics such as software development and customer service.

While this appears to be a bad thing short and mid-term for those of us who have become accustomed to our relatively comfortable life, I believe that it will lead to a more equitable world, one where we depend more on each other, where we see each other as equals rather than haves and have nots, and this is, undoubtedly, a good thing in the long term.

Our call to action is to strive to become more innovative, more creative and to constantly strive to improve ourselves on a personal and corporate level.

In the process of making adjustments to the world economy, there will be more economic challenges and, undoubtedly, more short-term financial pain. Thankfully, we have been blessed with Governments which are “relatively” aware of the need for subsidizing essentials such as health care and education.

Equity also implies a fairness of distribution of wealth.

The elimination of the extremes of wealth and poverty is another task for CEO’s and business leaders, world wide, to keep in mind while they make decisions around employee and executive compensation. While it important to have a distinction between high and low value jobs, (i.e. a CEO is certainly not equivalent to a factory worker in their value to the company), and this difference must be reflected in salary, which encourages striving for higher education and higher value positions. On the other hand, wise CEOs and executives also know that the true wealth in life is knowing that they have made a positive impact on their employees and on the world. They know that compensation must always be reasonable and generally have some way to share profitability with their employees.

Responsible Governments everywhere need to support these equity initiatives by imposing progressive and reasonable taxation on excessively high incomes.

Let’s continue to vote for those representatives who demonstrate their concern for equity and for environmental sustainability through word and actions.

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Building company sustainability out-side the company

The term Sustainability, more than just referring to environmental concerns, incorporates concepts such as social justice and equity. As we go about our daily lives in our society we often get glimpses on our television of poverty, starving children, disease and requests for much needed funds to help those children and their families around the world so they have enough to eat and the opportunty to become educated. We view such sights with sadness and sympathy and yet it is combined with a reluctance to actually pick up the phone and pledge money. After all, many of us already support a worthy charity on a regular basis and, let’s face it, we all have limits on our ability to be charitable. And, to be fair, we may even doubt the efficacy of the organization appealing to us for funds. We have often heard the story of the tremendous overheads of some organizations and how little of our money actually gets to it’s intended destination. There are sites on the internet that rate charitable organizations which is a good start, but there are also other ways of helping.

What if you could find a way of supporting the less fortunate by loaning them money rather than just giving them money? 

Micro-lending is a trend that has been around for several years started by individuals who realized that many viable small businesses in third world countries were unable to get off the ground due to a lack of capital.

Mainstream banks would not lend to these small businesses because the amounts they required were far too small to expect any reasonable profit and the entrepreneurs involved had virtually no credit history due to their lack of resources to become established businesses in the first place. Many of these small businesses are run by women with a simple idea and the enthusiam to meet a local community need. 

Micro-lending organizations then began popping up. They would select the most viable small business enterprises and give them very small loans, sometimes as small as $50 matching the equity offered by the entrepreneur, at very low or 0% interest, knowing that they were classified by all traditional standards of finance as “high risk”. As it turned out, most of these initial enterprises paid back their loans and with a reasonable rate of return. The people operating these businesses not only had a good understanding of the needs of their community but tremendous pride in their work and the willingness to put in the effort necessary to succeed.

The concept of micro-lending was born out of a need and since that time has become well established in many impoverished nations, thereby assisting small entrepreneurs to have a real opportunity to become successful and make a difference to the sustainability of their communities.

I recently came upon Kiva which is a California based non-profit organization. Through the internet, it connects small lenders with established and audited micro-lending organizations and their clients. It allows each individual lender to decide on how much they would like to lend and which projects they wish to fund. The funding level appears to begin at $25. Based on my reading, 100% of the loan is expected to be re-paid to the lender and the lender, in agreeing to take part, understands that these are considered high risk and that in some cases re-payment doesn’t happen. But history has proven most of these projects to be successful. In addition, there are many lenders funding these projects, thus sharing the risk. Based on my current understanding (and I look forward to those more knowledgable to correct me), the Interest earned on money returned to Kiva is used to administer their organization. The point of the lending, of course, is not to get rich from the loan, but it is an excellent alternative way of helping others to build their economy and their lives without having them rely on charity. Building without charity engenders a greater sense of accomplishment and allows the lender to contribute that same amount of money to more than one project. 

Kiva only partners with audited micro-lending organizations with a history of successful projects. It allows for rating of the micro-lenders and also provide a history of these organizations.

Kiva’s web-site http://www.kiva.org is an interesting example of the power of collaboration through the internet. It provides people who would like to lend to these small companies an opportunity to make a difference.

Take some time to check it out.

Garth Schmalenberg

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Creating a Learning Culture

After returning from an open house at the office of Berteig Consulting, I’m having an opportunity to reflect on the depth of conversation held with members of the Berteig team and the learning derived from these conversations.

Bertieg Consulting is run in a way that is more sustainable and quite different than most organizations.  It is based on a methodology called Open Agile, developed by the company, and which is implemented and continuously evolving within their organization.

Open Agile is a new method of Organizational management based on Agile principles but which are adapted for Organizational activity. One part of the process which is very different from traditional Organizational methodologies is the systematization of reflective learning which is much deeper and more consistent than with traditional approaches.

Learning about the methodology is one thing, becoming a skilled practioner is something else.

As an advocate of continuous and systematized learning, I congratulate the Bertieg team for their accomplishments and have offered to contribute to them in their efforts to evolve their process.

For business leaders interested in creating sustainable organizations, reflective learning followed by pragmatic value based actions are practices which ensure that goals are established, acted upon and learned from.

Open Agile promotes concepts of transparency, truthfulness and consultative decision making all of which are essential elements in building a truly sustainable organization. While holding these principles as core to the process, it also incorporates a framework for holding and sharing the learning. The result is a continuously improving organization.

For more information on Open Agile and Bertieg Consulting, see http://www.openagile.com or http://www.berteigconsulting.com

Garth Schmalenberg
416-919-6598

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Eco Patent Commons and other sustainability sharing initiatives

An interesting project for promoting a culture of sustainability is one initiated by the World Business Council for Sustainable Development who, along with participating companies, has created an Eco-Patent sharing project called Eco-Patent Commons. This project encourages companies wishing to participate to share patents which are beneficial for the environment. These patents are free to use and may be used by any company which might benefit from them.  Among the participants our companies such as Ricoh, IBM,Taisei Corporation, Dupont, and others.  Each of these companies has shared a number of their patents for the benefit of the environment.

As the severity of the earth’s situation becomes more apparent and the benefits of sharing are recognized, more and more companies are participating in this project knowing that they stand to benefit from utilizing each other’s intellectual property. Rather than starting from scratch, they are able to more quickly find solutions to some of their challenges add their own intelligence to ideas which have already been patented by another company.  A similar concept has been used in the IT world through open source.

Creating a culture of sustainability will require new ways of thinking for all of us.  As the requirement for answers to our shared the dilemmas becomes more critical, companies will have less time and less resources available for their own individual research. It will be those companies who are willing to work together to find solutions, that will ultimately dominate the market. 

Similarly, within companies, the need for cooperation between individuals and departments is at an all time high.  Organizations who have developed cultures of unbridled internal and external competition will suffer the consequence of falling behind to who have developed a culture of consultation, teamwork, sharing, joint venturing, knowledge management and continuous learning. 

Municiple, regional and national governments who have learned to work effectively with other government organizations, NGOs and Businesses, who have learned to foster cooperation and respect, who have mastered consultative decision making and who share the responsibility of decisions made, will ultimately lead those who are underdeveloped in these capacities.

The call to action for all of us, is to learn and discover new and better ways work together, to recognise that the solution to many of our challenges, both economic and environmental, are  global in their nature. Let’s view our shared dilemma as an ideal opportunity to learn how to work together. 

Whether we like it or not, much of our fate on this planet will ultimately be shared.

Till next time,
Garth Schmalenberg

PS: Web-sites related to sharing initiatives
WBCSD Eco Patent Commons – http://www.wbcsd.org/web/epc/
HBI Leadership – http://hbi-leadership.com

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Hodgins Memorial Lecture on Sustainable Development

March 19th 2009, the annual Hodgin’s Memorial Lecture at McMaster University was presented by Dr. Vicky Sharpe, President and CEO of Sustainable Development Technology Canada (SDTC). SDTC is a government formed corporation whose mandate is to provide funding for Clean Technology projects which are post research and development, but pre-market.

The organization has an annual budget for investment of about $500 million dollars funded by the federal Government and it partners with industry participants and provicial governments, which provide another 2/3 rds of the overall project funding for any of the initiatives. SDTC facilitates partnerships, coaches participants and has had a significant track record of getting products to the phase when they are ready Investment and marketing.

Ms. Sharpe described the current global situation as boiling the frog by slowly turning up the heat so the frog has time to acclimatize to the water while it cooks. With climate scientests now projecting a point of no return for carbon of 450 (on some accounts 350) ppm (parts per million) and with the earth’s atmosphere already at 387ppm, we are already into very mirky waters and there is need to act as quickly to get many of these new technologies to market. While projects are proprietary to the various companies supported by the funding, some information is found on the SDTC web-site at http://sdtc.ca

While technological expertise in research is one of Canada’s strongest qualities, the economic downturn coupled with Canada’s conservative investment environment is weaking the situation for clean tech development. Ms. Sharpe encourages private investors to look at some of the many projects born of highly skilled Canadian scientists, technologists and entrepreneurs. While having one of the highest level educational and research environments, she pointed out that Canada has an excellent opportunity to become a net exporter of technology. However, she warns that if investment in such projects stall, we will soon find ourselves importing those same technologies.

In attendance at the lecture were Mr. Howard Shearer, President and CEO of Hitachi Canada, a former McMaster Engineering Graduate, the David S. Wilkinson, Dean of the faculty of Engineering of McMaster University, and former CEO of Gennum Corporation and professor, Dr. Doug Barber as well as other prominant individuals, current and former McMaster Engineering students and faculty members.

Garth Schmalenberg

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Change in Site Name to “SustainabilityCulture.com”

After some consideration, although the theme of organizational unity is important, it doesn’t cover enough of what I want to share. So I’ve revised the theme of the blog a little and I’ll be sharing ideas with you on building sustainable organizations for a sustainable world.

Much of my work recently has been focused on gaining a clearer understanding of the many efforts that are being made around the world and more particularly in Canada on helping businesses succeed in doing what’s right for the world while ensuring that they still serve all of their stakeholders.

As I go forward, I will continue to research and as I do, I’ll share that kind of information with you. My goal in doing this work is to help organizations, first develop a desire to become more forward thinking if they are not already, and second to help them think about how they might go about doing that.

As an Executive Coach, I know there are two aspects of change. One is believing that we would like to, and the second is gaining the expertise and perspective needed to actually change.

My goal is to help my clients, prospective clients and anyone else who might be interested to take steps forward that will help them to get where they want to go.

All the Best,

Garth Schmalenberg

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