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Factors Shaping Management of IT Impact Sourcing Service Providers

What factors shape management decision-making in IT impact sourcing service providers?

IT impact sourcing means outsourcing IT work to bottom-of-the-pyramid employees with the aim of socio-economic development impact.  This was the focus for a study recently conducted within the Centre for Development Informatics at the University of Manchester by postgraduate researcher, Ioannis Traintafyllis under the supervision of Dr Brian Nicholson.

As detailed in a previous blog entry (“The Research Agenda for IT Impact Sourcing”), Rockefeller/Monitor research estimates that impact sourcing is already a US$4.5 billion market employing 144,000 people and “has the potential to be a $20 billion market by 2015, directly employing 780,000 socio-economically disadvantaged individuals”.

The most common model of impact sourcing involves three main actors: the client, the BoP sub-contractor employees/enterprise, and an intermediary that sits between the other two and provides quality control.  Examples of leading impact sourcing intermediaries – also known as ‘impact sourcing service providers’ (ISSPs) – include Digital Divide Data, Samasource, Business2Rural (India) and Daproim Africa.

The ISSP is critical but we know very little about what shapes their decisions: are they driven by a moral concern for the disadvantaged of the world, or by economic gain, or something else?

To investigate this issue, Schwartz and Carroll’s (2003)[1] three-domain model of corporate social responsibility was used, shown in Figure 1 below.

SchwartzCarroll Model

Figure 1: Domains of Responsibility Driving Managerial Decision-Making

The model identifies three domains of factors which, individually or in combination, can shape decision-making in organisations like ISSPs:

– Economic: e.g. a drive to profit

– Legal: e.g. a drive to comply with the law

– Ethical: e.g. a drive to comply with a moral code

This model was then tested with an established ISSP via interviews with senior managers plus a review of secondary sources.  Examples were found of all three domains shaping decision-making in the company:

Economic: senior managers saw the impact sourcing model as “an asset to open doors to the market” which could deliver an income stream for the company and meet clients’ needs in various ways.  First “it makes sense economically for our clients” but there was also a necessity to meet client standards “on the basis of quality” and also to meet client needs “to know if we operate in an ethical, corporate responsibility way”.  There was, though, a largely instrumental sense of economic factors: getting the economic aspects of the ISSP business model right was not an end in itself but a means to a wider end.

Legal: again, senior managers’ decision-making was shaped by an awareness of the legal context but as a box to be ticked; as an enabler to other ends: “we obey the legal responsibilities and the rules of the society but it is our social mission that guides our actions”.  There was an awareness of the value of compliance with global standards such as the UN’s Guiding Principles on Business and Human Rights, but these had not shaped the core functions of the company; rather those core functions were already well-shaped in a way that could meet global standards.

Ethical: the main impetus behind formation of the firm, and the foundation for decision making was the impact of contracts in providing jobs, skills and incomes for those from disadvantaged backgrounds in developing countries.  In philosophical terms, this was more a consequentialist than deontological morality: driven by the outcomes of the firm’s actions rather than by some deeper and shared moral code.

Two other elements, though, were notable in the responses of senior executives, which reflect some of the specifics of the ISSP business model.

First, this is as yet a relatively new, small and fragile business model.  Senior managers were therefore continuously concerned about sustainability of the business model and of the company.  As a concern, this had pushed diversification – of both client domains and outsourcing locations – as a strategy.  Diversification can be read as both economic and ethical in its origins, though an issue for all ISSPs will be whether – over time – there is a tendency for the balance to shift from the ethical to the economic.

Second, all domains and issues – economic, legal, ethical – were continuously filtered through the lens of corporate reputation and profile.  Managers knew clients, in part, signed up because of the positive image of impact sourcing; but would walk away if impact sourcing got a widespread ‘bad press’.  Their foremost legal concern was to ensure external awareness of compliance.  And they were keen to share stories of individuals who had been helped by impact sourcing; stories being the type of data that readily lends itself to good PR.

This is only to be expected.  In conceptual terms, as with other types of fair trade, clients do not have direct access to the context of production.  The ISSP is an agent acting on behalf of their client/principal.  As a result the link between client and BoP subcontractors is almost entirely mediated by trust, image and reputation of the ISSP, and by the wider media portrayal of impact sourcing.  This would necessarily make ISSPs most concerned about the appearance of processes and impacts.

The importance of external image is reinforced because impact sourcing intersects two business models – fair trade and IT offshoring – both of which have come in for strong, at times intimidatory and vituperative, criticism; particularly in the US.

We can therefore revise the basic triorbital model (see Figure 2) to show its dynamics over time which lead sustainability and diversification to shape decisions; and to show that all issues are always filtered through a reputation/profile lens, affecting not just external communications but also internal decisions.

ISSP Decision Factors

Figure 2: Factors Driving ISSP Managerial Decision-Making

The base of data used here is very limited, so much remains to be researched, but we hope this model can form the foundation for future study.  Analysis can probe the relative weights of the three domains, including the potential for changes in those weights over time.  Research can also look at the difficulties of managing in a field in which appearance may matter more than reality.


[1] Schwartz, M.S. & Carroll, A.B. (2003) Corporate social responsibility: a three-domain approach, Business Ethics Quarterly, 13(4), 503-550

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BoPsourcing: Fighting or Fuelling Inequality?

26 November 2010 5 comments

BoPsourcing – the outsourcing of work to bottom-of-the-pyramid communities – is on the rise.  Outsourcing used to mean sub-contracting work from one big firm to another nearby.  Then, with offshoring, the contracts crossed borders.  With BoPsourcing, the contracts cross several income strata as well.

BoPsourcing initiatives can be found that are run by:

All these, and many other examples from India, are onshore BoPsourcing.  There are also offshore varieties, such as Digital Divide Data, which outsources from large US organisations to telecentres in Cambodian small towns and villages.

BoPsourcing has no necessary connection with ICTs.  Indeed, many agricultural value chains are arguably examples.  Here, though, my focus is on ICT-related outsourcing.  Examples of contracts include data entry, transcription, digitisation, call centres and ICT training.

One of the key concerns about outsourcing and developing countries has been the potential to fuel income and other inequalities.  I could already see this studying software offshoring to India in the 1980s: an economic shearing in which those involved saw their incomes pull far ahead of the bulk of the population.  More recent evidence suggests offshoring increases overall wage growth but also increases inequality.

BoPsourcing presents an obvious solution.  Channelling the benefits of outsourcing down to the poor can drive wealth creation for those on the lowest incomes, and serve to reduce inequalities.

So.  Job done.  We can add BoPsourcing to our list of great development solutions.

Well, not quite yet.  First because the evidence base is very weak.  Second because BoPsourcing comes in nearly as many varieties as Heinz.  Figure 1 summarises.

 

 Figure 1: Continuum of BoPsourcing Approaches

 

There are at least four conceivable models that form the continuum (but feel free to add your own evidence and ideas):

  • Exploitative outsourcing seeks to bear down on wages and working conditions in order to minimise costs and maximise profits.  The result is an ICT sweatshop that does little to grow incomes, to deliver empowerment, or to reduce inequality.  At present this seems more of a bogeyman brandished by those at the other end of the continuum, than it is an evidence-based reality.  The potential, though, is certainly present with so many outsourcing firms seeking to drive down costs.
  • Commercial outsourcing reflects, for example, the steady diffusion of outsourcing in India and other nations, from cities to large towns to small towns and beyond.  Whether this can yet be called BoPsourcing (e.g., forgive the pun, whether BPO is BoP) is unclear.  Quite likely commercial operators have to date only got as far as large towns.  But the migration trend is clear, and it will reach poorer towns and even villages soon enough.  As for inequality, the effect is likely to be as arguable as it is for outsourcing generally: evidence is contested and, unfortunately, fought more by economists pitting ever-more complex models against each other, than on the basis of field data.
  • Ethical outsourcing (also known as socially-responsible outsourcing) takes commercial outsourcing and requires that it meets certain minimum standards; typically relating to labour practices but also starting to include environmental issues.  The International Association of Outsourcing Professionals has taken a lead on this.  This is likely to have some impact on inequality but, again, the extent to which such work really reaches the BoP as yet is questionable.
  • Social outsourcing (also known as developmental outsourcing) differs from ethical outsourcing as fair trade differs from ethical trade.  Ethical outsourcing involves existing commercial players with either a commitment to or measurement of adherence to standards.  Social outsourcing involves new non-market intermediaries who sit between the client and the BoP sub-contractor.  Social outsourcing most definitely does reach the BoP; indeed that is its raison d’être.  It has already been shown to increase incomes, increase asset holdings, increase skills, and increase empowerment.  It is therefore likely to reduce inequality.

True ICT BoPsourcing is on the increase – you only have to monitor the growing number of initiatives to see that.  Much of the more commercial end of outsourcing has yet to get this far.  It’s more like MoPsourcing (i.e. middle of the pyramid) just now, but cost pressures, supply-demand gaps, ICT diffusion, and growing awareness of BoPsourcing mean this is changing.

The impact of these trends on inequality will depend on which outsourcing model comes to dominate the BoPsourcing business.  If social outsourcing wins, then so too will the poor.  If exploitative outsourcing wins, the opposite will be true.

In practice we may well see some messy combination of models, as social and commercial approaches intersect.  For the social outsourcing intermediaries, the lure of big clients, contracts and growth may pull them into bed with commercial operators.  Conversely, the operators will be attracted by the contacts, expertise and CSR-window dressing that social intermediaries provide.  The poor themselves will get jobs, skills and income.  Whether they will see the structural transformation necessary to really clobber inequality, only time will tell.

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