Intangible Loss of Outsourced Innovation

Today’s New York Times front page features “How U.S. Lost Out on iPhone Work” about the loss of American jobs overseas and the implications for our middle class.  I’ve been thinking about the 2nd, 3rd order effects of outsourcing, especially now that some companies are either doing or seriously considering insourcing. 

In November, I spoke with Bernard Charlès, CEO of Dassault Systèmes, (DS), creator of 3D simulation products for manufacturing to life sciences. Insourcing is a key component of Dassault and Bernard’s personal values: a company’s role includes contributing to society and the economy through the business itself.

I’ve wondered about the cost-benefit equation of in vs. outsourcing for a while.  Most cost-benefit analysis focuses on tangibles: lower labor rates, higher freight, etc.  Are 2nd and 3rd order effects accounted for in the equation: benefits of training and professional/career development, adjacent businesses in manufacturing or services, other opportunities?  I don’t know.  And what about innovation?

I agree with many who believe we learn by doing.   Many innovations arise by trying to do something one way and figuring out a better way or an entirely different way to do it.  If we’ve outsourced the ‘doing’ doesn’t it follow that we’ve outsourced the ‘learning’?   I wonderful how many opportunities for innovation we’ve lost because we weren’t ‘doing’.   In the NYT article, Apple’s executives said the reason for outsourcing went beyond cheap labor; overseas factories could scale faster and workers were more flexible and skilled than in the USA.  Perhaps because they learned to?

While ‘learning from doing’ is not easy to quantify and add into the equation, it needs to be.   Isn’t that an important part of the ‘business case’ for insourcing?  Perhaps it wasn’t viewed as important in the last century, but it sure is for this one. As we rapidly move from knowledge stacks to knowledge flows, per John Hagel, the ability to capture and apply learning becomes one of customer, and competitive, advantage, if not survival – of companies, economies, societies.

So, have you tried to quantify your ‘learning by doing’? Have you made it part of any business case for out/insourcing?  Please share – these are important and valuable lessons.