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In this presidential campaign (presidential as in “for the office of president,” not “of a caliber deserving of the office”), “spin” is the label applied to the most accurate statements candidates make. Complete fabrication is a polite label for the other end of the spectrum. (Don’t believe me? Check www.factcheck.org — an outstanding and completely non-partisan website whose name is well-deserved.)

Business speech isn’t far behind. Take as a recent example a report, published by the ITAA — the Information Technology Association of America, on offshore outsourcing’s impact on the U.S. economy (the ITAA calls it “global sourcing”).

According to the ITAA, offshore outsourcing is good for the U.S. economy. In this, it isn’t alone, of course, and the point of this column isn’t to debate that issue. It’s to debate whether the ITAA is offering real evidence, or just more spin than you’d find in an average pulsar. Take, for example, this statement:

“In the software and services area, the economy will create 516,000 jobs over the next five years in an environment with global sourcing but only 490,000 without it. Of these 516,000 new jobs, 272,000 will go offshore and 244,000 will remain onshore. Thus the U.S. IT workforce will continue to grow.”

Sounds great, doesn’t it? But look more closely. The ITAA predicts that with global sourcing, the U.S. economy will create 244,000 domestic jobs; without it, 490,000 domestic jobs.

It didn’t read like that, did it?

Another quote from the ITAA report:

“While global IT software and service outsourcing displaces some IT workers, total employment in the United States increases as the benefits ripple through the economy. The incremental economic activity that follows offshore IT outsourcing created over 90,000 net new jobs in 2003 and is expected to create 317,000 net new jobs in 2008.”

90,000 net new jobs spread throughout the U.S. economy sounds great. But are they full-time jobs or part-time? The ITAA doesn’t say, nor does it provide an estimate of the average wage of these marvelous employment opportunities. Want to place a bet?

Then there’s this:

“Workers are expected to enjoy a bump up in real wages. Offshore IT software and services outsourcing actually increases average real wages of U.S. workers. With lower inflation and higher productivity, real wages were 0.13% higher in 2003 and are expected to be 0.44% higher in 2008.”

So if you are still employed in the technology sector, the ITAA says you made an extra hundred bucks in 2003 because of global sourcing. Don’t spend it all in one place. Oh, that’s right — you can’t, because you don’t have the time anymore. “Higher productivity” is EconomistSpeak for “employees work more hours without getting more pay.”

One more:

“Demand for U.S. exports is expected to increase due to relatively lower prices of U.S. produced goods and services and higher incomes in the offshore outsourcing destinations. Real exports were $2.3 billion higher in 2003 and are expected to be $9 billion higher by 2008.”

Now that sounds sensational, doesn’t it? We all know the U.S. has had a net trade deficit for decades. Global sourcing is going to reduce it, suggests the ITAA. The unstated reality is just a wee bit different: Sending work offshore is the economic equivalent of importing trade goods, and the U.S. dollars that flowed offshore in 2003 as a result of global sourcing — $11.3 billion — resulted in a net increase in the trade deficit of $9 billion.

And did you notice how much bigger all benefits will be in 2008 than they are right now? This sounds familiar. The ITAA estimates closely resemble those published by the IT research firms during the dot.com era: Tiny markets now, huge sales in five years. And we all know how often those forecasts came true.

Since the ITAA’s members have a considerable stake in promoting offshore outsourcing, its findings were a foregone conclusion. What’s sad is the extent to which the business press reported these findings as fact, with little or no analysis and few attempts to discover dissenting opinions.

Or maybe the problem was a typographic error: Where they said global sourcing is better for the U.S., they meant to say, “Global sourcing is better for us.”

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|In: Industry Commentary|Last Updated:

There are simple sourcing strategies. There are effective sourcing strategies. But there are no simple, effective sourcing strategies.

This, at least, was the perspective offered by yours truly at Outsourcing Strategies 2004 the week before last. It is, it appears, the minority perspective. The popularity of the Core/Context Theory — “Keep what’s core to your business and outsource the rest” — appears to be undiminished by the complete lack of any evidence to support it.

Complete lack of evidence?

Yes. In fact, that’s being gentle about it. In the past few years, two research teams reported the results of extensive research on what characteristics and practices lead to enduring business performance. The better-known, reported in Jim Collins’ Good to Great, found seven features common to outstanding corporations: A “Level 5” leader — one focused on building a great organization, not on personal recognition (I’m oversimplifying: there’s a lot more to Level 5 leadership than this); a strong, focused, coherent leadership team; a willingness to face the “brutal facts of their current reality”; clear focus around an organizing business goal (the “hedgehog principle”); creation of a “culture of discipline” (as opposed to achieving disciplined execution through close supervision); the use of technology as an accelerator; and reliance on the “flywheel” effect (building momentum for success on ongoing, continual, accelerating change, not on one-time transformational breakthroughs).

The second research effort was called the Evergreen Project. Described by William Joyce, Nitin Nohria, and Bruce Roberson in What Really Works, the project found eight factors — four primary, four secondary — that separated winners from the pack. While the factors aren’t exactly the same as those articulated in Good to Great, it appears the differences are more a matter of how each research team chose to define its categories than major disagreements as to what’s important. Having a clearly stated, focused strategy as stated in What Really Works isn’t very different from the hedgehog principle. Two other primary characteristics, flawless operational execution and a performance-oriented culture, together look a lot like instituting a culture of discipline and using technology as an accelerator.

The two studies don’t line up perfectly, which isn’t all that surprising. The Evergreen Project found that a flat, flexible organization was important to success. Collins was silent on this subject. And Evergreen’s list of secondary factors — retain and attract exceptional talent, creating industry-transforming innovations, growing through mergers and partnerships, and keeping leaders and directors committed to the business — have less overlap with Collins’ findings.

How to account for the discrepancies? When two study teams look at the same pile of raw data, there’s no particular reason to expect them to abstract the same generalities. The process of doing so isn’t purely analytical (Collins is direct on this point, describing lots of discussions and downright arguments over what a bunch of specifics might mean.) And since both pieces of research are correlative rather than experimental, this kind of disagreement is to be expected.

One point is clear: Keep the core and outsource the rest is nowhere to be found among either study’s recommended practices. Sounds to me like keeping the core and outsourcing the rest isn’t correlated with enduring business success.

(Keeping a wary eye on the ROI of individual projects or applying any other purely financial perspective on running a company is similarly absent, by the way, as is focusing on the maximization of shareholder value, two very popular points of emphasis among the current crop of business pundits … but that’s another column for another time.)

Adherence to the core/context theory isn’t among the factors driving outstanding business performance. It’s unsurprising when you look at how most large-scale outsourcing contracts are constructed. Much of their payoff comes from nothing more than the playing of financial games — a transfer of capital assets that front-end loads the benefits and back-end loads the costs. Gee, maybe that has something to do with why client satisfaction frequently runs out of steam just a few years into the average outsourcing relationship.

So why would a business theory that’s unsupported by the evidence retain such popularity?

Simple, easy-to-understand explanations are comforting — much more comforting than notions like the need for focus, disciplined execution and persistence. And given a choice between a comforting explanation and one that actually works, many people prefer comfort.

That’s one of the brutal facts of our current reality.

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