A fact of corporate life is that there is constant pressure to “beat yesterday,” to increase corporate earnings and push more profit to the bottom line.
In their drive to increase profits, many organizations have resorted to outsourcing outside their home countries. We call that “offshoring” and for years, The Herman Group has been sounding the alarm that, in most cases, the savings from offshoring are simply “not worth the effort.”
Recently, we learned of an extraordinary U.S. company that faced this issue and rather than offshoring, decided to “lakeshore.” Lakeshoring means outsourcing to another organization within your home country. Sedgwick CMS, one of the few organizations to earn the Employer of Choice designation for three years in a row, embraced this seemingly counterintuitive idea.
When Sedgwick faced the choice, “to offshore or not to offshore” its claims processing unit, unlike its major competitors, its enlightened CEO David North made the executive decision that it would not.
Instead, he charged his troops with finding a location within the United States where there was an available work force with significantly lower costs. The result: the “Lakeshore Project,” including the company’s facility in Dubuque, Iowa.
The Lakeshore Project, providing “jobs, training and modest salaries for employees in small communities throughout the country, has led to savings for customers,” North said.
The real payoff for the company is in lower employee turnover, thus providing a higher continuity of service and bottom line savings. In fact, during the first six months of the program, the company did not lose one employee at the new facility.
In 2004, Minnesota’s Northeast Higher Education District coined the term “True North” to promote its tech-prep graduates. The program uses federal funds and encourages companies to locate in the region.
Lakeshoring avoids many of the challenges associated with offshoring: language and cultural differences, quality control, resentful domestic employees (although Sedgwick calls them “colleagues”), shrinking salary differentials, high turnover, deficient infrastructure and even the loss of social capital.
Our forecast: in the years ahead more organizations, large and small, will resort to lakeshoring rather than offshoring.
From The Herman Trend Alert, by Joyce Gioia-Herman, strategic business futurist. www.hermangroup.com