Looking Forward: Outsourcing and the Age of Rapid Startups and Hyper-specialization
on Jan 8, 2015
Technology is enabling ever more rapid formation of multi-entity project teams, distribution of finely-grained tasks, and a growing set of resources for rapidly starting new enterprises. The overall impact is positive for the world economy and individual firms.
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Technology has enabled the remarkable evolution in the structure of enterprises (see Governance of Federated Business Models) with the ability to outsource and divvy up numerous tasks required to run a modern business, build products, and deliver services. The work that used to be done in a single vertically integrated company is split across literally hundreds of firms—or increasingly individual contractors and freelancers. This trend and transformation is a multi-decade phenomena that is far from over.
The Project-team Model
One of the implications is the rapid formation of teams comprising multiple firms (and/or individuals) on a per project basis. The project might be the delivery of a specific product to the market, or the construction of a building or plant, or the design and deployment of a new website, or responding to some disaster. This approach is not unlike how movies get made, where the actors and crew are pulled together to make each new movie and then disband once it’s done, but are likely to work together again in different configurations on future projects.
Technology here is critical for streamlining team formation, finding and evaluating the right expertise—while team candidates simultaneously evaluate the opportunity, their fit, and the hirer. Supplier networks are an example of an enabling technology. By pooling information about supplier capabilities, these networks can help buyers find the right partner/supplier rapidly. For example, Ariba Network has over 1.6 million connected companies and supports not just supplier discovery but also provides a platform for streamlining and automating the transactions (P.O. through payment) that occur after a supplier has been selected. Panjiva, with profiles of 10 million companies, takes a different approach, by mining public trade filings (import and export) to discover who is selling what to whom and enriching that with web-based data. Alibaba connects companies worldwide to over 7 million suppliers and manufacturers.
Domain- and Industry-specific Networks
Many ‘discovery/broker’ platforms are aimed at specific domains or industries. For example in logistics, there are the logistic networks—such as Descartes and GT Nexus—which provide not only the ability to discover carriers and forwarders, but also rich logistics execution platforms. Some of these are about matching supply and demand, such as load-boards on which shippers can post loads for truckers to bid on. They can get very specific, such as IAS’ ability to optimally match available drayage loads1 with available drayage carriers. There are networks for packaging and other domains as well. And many industry-specific marketplaces and networks.
Ratings, Capabilities, Trust, Verification
Provider/partner rating systems that can be trusted and not easily gamed, are key to making these networks work. Most broker/discovery platforms have some sort of verification and rating system, but these vary greatly in their depth, diligence, specificity, and trustworthiness. There are some industries (such as the defense, aerospace, and pharmaceutical) where verified identity and trust are paramount.2 There are highly secure platforms, with strong identity management to serve those communities. Identity management and the ability to know that the outsourced partner is who they say they are are critical. We see companies like DocuSign providing not just e-signatures, but building up a network of trusted identities, which could ultimately help further accelerate and reduce risk in outsourced project team formation and adding new team members.
The value of efficiently finding and selecting a team is largely unrealized unless a member can be rapidly integrated together and can effectively collaborate to deliver the desired product or service. Engineering design teams need to be able to collaborate, rapidly generate specs and interfaces, allowing the back and forth give and take to optimize the design, consistent with overall project goals. Collaborative engineering suites, such as PTC’s Windchill, are an enabler of this. Next comes the challenge of having a smooth handoff to manufacturing, ensuring form, fit, quality, manufacturability, and rapidly resolving quality issues. The integration of delivery includes the end-to-end logistics, as well as coordination of the skilled labor needed at the customer site, whether it is a construction site or installation of a system in a home or business. Later in the lifecycle, service and repair usually involves the coordination of several third parties, including call centers, inventory centers, technicians, dispatchers, etc. (See Collaboration in Practice for more).
Strategic Partnerships Still Alive and Well
The ability to nimbly form teams is not the death knell of long term strategic relationships. Just the opposite, specific pairs and groups of companies become better and better at working together and end up deeply embedded in and committed to the partnership. In this way, companies get the flexibility of the outsourced model combined with the reliability, consistency, and efficiency of the strategic relationship (see Transenterprises: The Emerging Business Model of the 21st Century).
Outsourcing and the Age of the Rapid Startup
We have already witnessed incredibly rapid formation and growth of innovative startups. But this is only the beginning. There are a wide array of resources that startups can tap into. We expect to see a lot of growth this year and in coming years in these types of resources:
Collaborative Outsourced Engineering/Manufacturing—We see a small but growing number of outsourced engineering firms (such as Igor Institute) focused on quick-turn prototyping to help startups rapidly turn their ideas into reality. They in turn partner with 3D print shops3 and short-run manufacturers to get products to market quickly and try them out.
Operations Outsourcing— Freelance networks such as eLance, Freelancer.com, Vworker, and Toptal let startup founders find almost any imaginable help they need—legal, marketing, virtual assistants, bookkeepers, graphic artists, PR, programmers, HR. You can even find and hire an experienced manager to find, hire, organize, and manage the rest of the team. All without hiring a single permanent employee.
Task Crowdsourcing—There are crowdsourcing platforms that let you take arduous tasks or thorny problems and outsource them to hundreds or thousands of people across the globe. Examples include CastingWords, a transcription service that splits up large audio files into small chunks for transcription, not just for speed, but also quality control (parts are redundantly transcribed to catch mistakes). Much more broadly, Mechanical Turk is a general marketplace service from Amazon that can help distribute many kinds of work tasks all over the world. InnoCentive is an open innovation community/platform that allows anyone with a challenging engineering or business problem to stage a contest for its community of ~300K ‘solvers’ to tackle. TopCoder is also based on contests for developing the best software. Some of these platforms have outcome-based models of payment: Mechanical Turk requesters only pay for work that meets their required level of quality; InnoCentive Seeker’s4 only pay for a solution they consider acceptable.
Crowdfunding—Of course all this takes money. Most startups require founders willing to work for sweat equity. But they still need capital to hire outsourced partners and service providers, and even more capital if they actually want to buildthings. There are literally hundreds of crowdfunding platforms that can help them raise that capital, such as Kickstarter, CrowdCube, Indiegogo, Seedrs, RocketHub, SeedInvest, FundRazr, GoGetFunding, and more.
These resources will have a positive trend towards providing incubator-like resources to a much broader array of startups. They lower the cost and risk of starting a business.
The Age of Hyper-specialization
Many of these forces are pushing us into hyper-specialization5—individuals and firms finding their niche in the supply chain and providing differentiated value that few others can. We see this in the broker forwarder community, in manufacturing, logistics, packaging, and up and down the supply chain. Some of the crowdsourcing tools encourage hyper-specialization by their ability to efficiently segment tasks and problems.
Orchestration and Third-party management
In these scenarios of extreme outsourcing and short-lived project-based teams, decisions about segmenting the work need to be made with a global end-to-end picture in mind. There needs to be a supply chain orchestrator to ensure optimal configuration of the supply chain, especially when physical products are being manufactured in many stages and locations (for more, see our research library on Supply Chain Orchestrators and Federated Business Models). Furthermore, the outsourcing of work does not relieve a company of responsibility and liability. In fact, managing these tens of thousands of partners can be a huge source of risk. Technology platforms such as CVM and Hiperos (acquired by Opus) can enable efficient and effective management of risk and compliance6 with massive numbers of partners.
Let a Million Flowers Bloom
The overall impact of this trend is positive. In particular, many of these approaches and resources accelerate the formation, trial, and success (or rapid failure) of new businesses, hence providing a permanent booster charge to the economy. Business leaders (and evolutionary biologists) often tout agility, adaptability, and speed as the keys to surviving and thriving. The ability to rapidly form teams, distribute tasks efficiently, coordinate efforts, and tap into the power of large numbers of partners is a powerful force going forward.
1Drayage is the movement of containers and cargo to or from a ship at a port to or from a nearby inland destination—usually a warehouse or intermodal railhead. -- Return to article text above
5 Hyper-specialization is described in the HBR article The Age of Hyperspecialization which focuses on the ability to micro-segment individual tasks as a key driver of hyper-specialization. That is one key factor, but there are other forces and enablers driving increasing specialization in supply chains as well. -- Return to article text above