Success Factors in Outsourcing Service Jobs

An increasing number of U.S. companies are outsourcing information technology and professional service jobs to offshore locations to reduce costs and take advantage of global skills. Given the stakes involved, both in terms of organizational capabilities and the bottom line, managers want to know which jobs are more conducive to global disaggregation. Sunil Mithas, assistant professor of decision and information technologies at the Robert H. Smith School of Business at the University of Maryland and Jonathan Whitaker, a Ph.D. student in business information technology at the University of Michigan, provide an answer to this question in their 2006 working paper, “Effect of Information Intensity and Physical Presence Need on the Global Disaggregation of Services: Theory and Empirical Evidence.”

Mithas and Whitaker introduce a mechanism that they call ease of disaggregation. Drawing on the U.S. Department of Labor’s Bureau of Labor Statistics listing of Standard Occupational Classification codes and Occupational Employment Statistics and mapping the data to the categories used in a seminal 1995 study by Uday Apte and Richard Mason, the authors were able to isolate the types of jobs with the greatest potential for outsourcing from 2000–2004. Since the Apte and Mason study, it has been believed that higher information intensity jobs are easier to outsource and higher physical presence jobs are more difficult to outsource. However, the authors use the data to understand more specifically how information intensity and physical presence affect the outsourcing potential of a given occupation.

Ease of disaggregation consists of three aspects of an occupation, what the authors call codifiability, standardizability and modularizability. Codifiability refers to the extent to which the activities in an occupation can be described completely in a set of written instructions. Occupations with a high proportion of explicit knowledge are more codifiable than occupations that use tacit knowledge. For example, the occupation of insurance underwriter is more codifiable than the occupation of heart surgeon. The process and acceptance criteria for an underwriter can be completely documented, but it is more difficult to completely document the step-by-step process during open-heart surgery.

Standardizability is the extent to which the activities in an occupation can be performed successfully using a set of consistent and repeatable processes. The consistency of processes applies across different workers and across different cases. Fast-food cashier is more standardizable than the occupation of lawyer.