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Outsourcing deserves some blame for financial crisis
Dan Cunningham
Issue date: 10/6/08 Section: Commentary
When most people hear about "outsourcing," they often think of corporations moving manufacturing jobs to developing countries like India or China, or American blue-collar families losing their homes and dignities. We might see sweatshops or greedy CEOs lining their wallets at the cost of the American Dream for the common person. Politics has made this word almost dirty in character, which clouds our analysis of it. However, addressing this very process could be part of the solution for turning around the financial crisis we are experiencing today.
Outsourcing, at its most basic, is the process of moving a function out of one organization and into another. When a manufacturer supplies a local retailer with their product, they have outsourced the function of selling. The theory behind this is that a company can remove 'sources' of costs and responsibility to a firm who has the resources to address it better. It allows for specialization and simplifies the responsibilities for the company.
As we study the economy today, one must recognize the purpose this basic concept of outsourcing has served in our ongoing financial meltdown. The financial industry is a dense one and outsourcing often occurs in the face of such complexity. Consider the process of receiving a loan. Lenders must perform rigorous background research on a prospective borrower. They must validate factors like property value, borrower income and credit history. They must write up contract terms, then secure and transfer the funds. These are all time consuming and costly procedures, leaving lots of room for error.
When the financial industry was developing, a separation of functions emerged. Businesses were created with the sole function of contract writing and selling and others for background checks and credit history. In addition, there are the banks that pay for it. For simplicity, we can call them the salespersons, the banks and the detectives. Right here, a conflict of interest emerges between the groups.
Outsourcing, at its most basic, is the process of moving a function out of one organization and into another. When a manufacturer supplies a local retailer with their product, they have outsourced the function of selling. The theory behind this is that a company can remove 'sources' of costs and responsibility to a firm who has the resources to address it better. It allows for specialization and simplifies the responsibilities for the company.
As we study the economy today, one must recognize the purpose this basic concept of outsourcing has served in our ongoing financial meltdown. The financial industry is a dense one and outsourcing often occurs in the face of such complexity. Consider the process of receiving a loan. Lenders must perform rigorous background research on a prospective borrower. They must validate factors like property value, borrower income and credit history. They must write up contract terms, then secure and transfer the funds. These are all time consuming and costly procedures, leaving lots of room for error.
When the financial industry was developing, a separation of functions emerged. Businesses were created with the sole function of contract writing and selling and others for background checks and credit history. In addition, there are the banks that pay for it. For simplicity, we can call them the salespersons, the banks and the detectives. Right here, a conflict of interest emerges between the groups.
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uconn mfg grad
posted 10/07/08 @ 12:57 PM EST
This article is pretty sad. Very weak arguments combined with a poor understanding of supplier networks.
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