A relentless focus on operational efficiency has been a feature of the last business decade. Organizations addressed the challenge by converting work into commodity packages that could be out-sourced or off-shored. Beginning with routine, easy stuff, there was rapid growth in labor arbitrage – moving work to low-cost locations. The immediate and positive impact on the cost line accelerated efforts to commoditize increasingly complex work packages. The snowball effect accelerated the process: companies scrambled to move more and more work to cheap and cheaper locations.

In my opinion, it wasn’t the snowball effect, it was the lemming effect.

• Efficiency is not the same as effectiveness.

Is it wise to do the wrong thing the cheapest way? Instead of embarking on an effort to reduce the help desk cost per call, would it be better to invest in an engineering effort aimed at eliminating defects that lead to help desk calls in the first place?

• The location may be low-cost, but its people won’t want to remain low-paid.

Off-shore locations have huge retention challenges: annual turnover of 40% is ‘good’. This means that two people must be hired to handle each job. If labor movement is easy, the situation becomes even more difficult. For example, a multinational enterprise recently decided to place a shared service center in Poland because of a large, highly educated, and English-speaking workforce. That workforce emigrated before the center was finished and workers had to be imported from Romania. It is always a mistake to ignore the drives of human initiative.

As business activity in the low-cost locations increases, costs become less low; companies respond by moving to the newest low-cost location. Carried to an extreme, companies discover that their only core competency is job movement.

• Organizations rely on people who are social. 

No matter how many Emails, Tweets, Skype calls and Video Conferences are read, written, heard or viewed, people work best when they are close to their colleagues. As work is commoditized, employees come to be viewed (and sometimes view themselves) as replaceable automatons devoid of unique and valuable capability or wisdom.

It may not be trendy to say, but business success (especially innovation) depends on teamwork and social cohesion. As the song goes: “People need people”.

Compartmentalization has an insidious underside. Near-term cost advantages are easily visible; long-term negative impacts take longer to surface. This often means that the person who took the ‘hard decision’ to move work to a low-labor cost destination is promoted before the long-term implications of the decision becomes clear. Others, working to clean up the mess, may even find themselves blamed for the mess.

These challenges can be ameliorated if companies deliver on the promise that “our people are our most important asset”. A company achieves great results when a team of people work together toward a common objective. An article (“Here’s something to write home about!” by Thorsten Amann) in April 2011 KPMG’s High Growth Market Newsletter, explains one way that companies can create value by (literally) mobilizing their executive workforce.

In the coming years, success will depend on shared effort of teams of human beings that can work together. After a long walk, eh, sprint through the wilderness, the business world is beginning to change: the pendulum has begun a return journey.

By Dan Martin, CIO @Global-Arena.com