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The BPO industry was effective long before “Impact Sourcing”

April 18, 2018 Mike Dershowitz No comments exist
From the Desk of Mike Dershowitz

I’m here at the PACE annual conference outside of Atlanta. While getting ready for the conference, I started doing some research on some of the participants, and I saw a few organizations that seem to be speaking the same language we do at Rethink Staffing.

Back in 2013 and 2014, the concept of “Impact Sourcing” got hot in the BPO industry. Basically, Impact Sourcing is selecting a BPO service provider based upon the impact the provider is having on the lives of its employees. In other words, Mr. Fortune 500 company, what impact is your sourcing having on the lives of the people in the developing world that you employ through your service provider?

Companies like DDD and RuralShores in India became poster children for what impact sourcing can do. And let’s face it, as I have written about extensively, our industry needed some good mojo. Enter the social impact entrepreneurs to give us a facelift.

But what happened? There was a great report from the William Davidson Institute and then the mighty Rockefeller Foundation got involved. The IAOP themselves covered Impact Sourcing in their PULSE newsletter in 2014. But then, according to Google searches, it kinda went away. I think I know why.

Isn’t all BPO impactful? Earning, on average, more than $79B each year, the global outsourced services industry has certainly created enough trade flows between the developed and developing worlds over its three decades of existence on our planet to be impactful.

You see… this is where the BPO industry gets a bad rap. Okay, don’t get me wrong. Customer experience can be miserable, physical or psychological violence in the workplace is common, and the industry speaks the wrong language when measuring itself. BUT, as one of my favorite movie characters of all time said, “Show me the money.” And the BPO industry has certainly shown the developing world the money.

The result? Global poverty has halved from 1990 to 2010 (source: The Borgen Project). By 2015, more than 60% of the world’s poorest populations are living above the poverty line. Clearly, the global outsourcing industry can be a source for poverty alleviation.

You have to go back to the basic economics. The BPO industry has created millions of jobs in the developing world that simply weren’t there before. You think things are bad in the Philippines now? Okay, Duterte’s a little crazy, for sure. But, the two largest industries in the country are remittances from Balikbayans (migrant and overseas Filipinos) and the BPO industry!

While the exact number of Filipino families that were lifted out of poverty over the last 30 years is unknowable, there is enough data between 2006 and 2015 that would indicate a significant change in the economic circumstances of many Filipinos. The statistical data showed a 23.5% increase in the number of households belonging to the middle-income brackets between 2006 and 2015. And, there’s nearly a 70% decrease in the number of families belonging to the lower-income brackets.

Look at the segmentation based on the sources of income of middle-class households. Between 2012 and 2015, there’s a huge gap between those who are receiving wages and salaries, and those who are engaged in entrepreneurial activities and other income streams. Incidentally, the Philippines posted its highest GDP growth in 2013 at around 3.4 percent. This is also the same period that the country was recognized as one of the top outsourcing destinations in the world. Since then, economic growth has been steadily advancing at more or less 6.6% each year.

Yes, the work environments may suck. But, the basic economics are working!

I think the reason “Impact Sourcing” has fizzled out is because it didn’t, or couldn’t scale. The Everest Group estimates that 12% of all business process outsourcing is Impact Sourcing. That’s still a lot (around $9.4B in annual revenues), but I think it’s really hard to prove that, and I’ve not seen anything that does it.

Impact sourcing focuses on doing really hard things in BPO, like taking people who are literate in remote places and getting them into basic BPO work. That’s great and the pioneers of the industry have shown it works since 2001. But the numbers are still small, and this is where the missed opportunity is.

What also confused me about Impact Sourcing is – why does it have to be non-profit or minimally profitable. Why does a “Socially Responsible Business” have to mean “low profit.” Even DDD’s annual report, an excellent source of information about how conditions on the ground are like, lists as a KPI the “percentage of business expenses covered by revenue,” which, in 2017 was 92%. Does that mean that net operating margins were negative 8%?

Look, I’ve been no small critic of the BPO industry — mostly because many of the agents at Rethink Staffing have worked in other BPO companies, and we (and I personally) spend a lot of time “de-programming” all of the faulty assumptions they have picked up when they were at big-box BPO firms. We’re living it first-hand.

So, let’s just be honest. The Impact Sourcing crew is doing great work — and we at Rethink Staffing will probably join the GISC this year. But the basic economics tells us that the BPO industry is one of the most effective in lifting millions of people out of poverty in the last 30 years. Even more when you count the Agents themselves, plus the 3 to 4 people their income gets spread out to, either in direct support or through additional purchases.

The basic economics of our industry has done a tremendous job at alleviating poverty in the developing world — Jeffrey Sachs would be proud. That is impactful, and we should feel good about that.

Now, if the industry could just stop treating its people like shit, we’d have more to feel good about. More on that later.

If you have questions about fair trade entrepreneurship and how it applies to your company or you just want to talk about outsourcing in general and how to set up a business in the developing world, feel free to contact me or leave your comments below.

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