Home Professionalisms Outsourcing vs Automation: Is There A Difference?

Outsourcing vs Automation: Is There A Difference?


by Ralph Perdomo, research analyst at Nvoicepay

Did you hear the one about the company that lost its way to outsourcing?

In the early ’90s, a European automotive company began outsourcing part of its operations. At first, it was just in the production of small components and systems.

Within a few years, however, it shifted substantial parts of its design and engineering responsibilities to its suppliers. Soon enough, the company realized it couldn’t fix simple design problems without considerable expense. Worst yet, it realized it had lost control of its product effectively ceding its brand to its suppliers.

The organization outsourced all its talent. In doing so, it outsourced its very essence—its soul.

Typically, organizations don’t go so far as to outsource their core competencies. Rather, they outsource other functions or departments, such as customer support or accounts payable. But, even when outsourcing those departments, do organizations risk losing something as integral as its soul?


The parable above fails to account for the tremendous leaps in which technology has advanced. While in the past, outsourcing has meant relinquishing a certain degree of control, today’s outsourcing — the kind found alongside automation — adds control.

Outsourcing isn’t the risk it once was and here’s why:

Back in my day…

The old style of outsourcing — as in the outsourcing typically associated with the handing out of pink slips—doesn’t listen; it simply gives an order and expects the correct result will follow.

In this model, a manager would be put in charge of an outsourced labor pool and provide instructions to it. Only occasionally would he or she check in on the status of the project before its completion.

Worst yet, this set-it-and-forget-it approach to labor management left organizations ill-prepared to deal with the inevitable issues that would arise. Harkening back to that European auto company, when components had to be troubleshot or re-tooled:

“Making changes late in the process was not only complicated; redesigns also were expensive and led to delays in product launches. Moreover, it meant that products could not be fully tested, which often led to assembly problems or product recalls.”

Organizations employing this type of outsourcing are prioritizing short-term, marginal success in exchange for long-term sustainability and growth.

The single greatest action an organization can do to change this course is to better its communication.

Can you hear me now?

Communication is paramount to modern outsourcing — simply because outsourcing no longer exclusively involves humans. It’s ironic how today’s outsourcing relies heavily on communication only after it no longer became about working with people.

Today, outsourcing has become the domain of machines — which means it’s also the sibling of software.

Instead of outsourcing a department to a more cost-effective labor pool, organizations are outsourcing those entire departments through software. This is outsourcing through automation. But unlike that older, pink-slip inducing kind of outsourcing, this outsourcing through automation doesn’t necessarily come at the expense of human capital. But more on that shortly.

Whether it’s an outsourced automated factory assembly line, or an automated accounts payable department, efficient communication is key. And that’s precisely how organizations interface physical departments with software.

That’s because software doesn’t work with broadcasted messages. Rather, it takes a more nuanced, gentler approach—so to speak—to get software to work. Software can’t just “roll with the punches” like a person can. It can’t assume what you meant or infer what will happen next. Whenever a piece of software encounters anything outside of what it’s been programed to do, it stops.

Our recourse to this finicky behavior is to listen.

Using the example of a well-designed automated software solution—one that reports back—we can listen for key data points. Let’s say an up-time logger.

Knowing by day’s end that a particular cog with a 50,000 hour MTBF rate is quickly approaching that limit would trigger a notification to order its replacement cog well before its anticipated failure.

Or in the case of an automated AP department, the information reported back could be remittance and bank reconciliation information—saving the accounts payable department, or even outside auditors, countless hours.

In both cases, organizations anticipate the future, plan accordingly, and avoid downtime—or even a costly audit. All just by listening.

A rose by any other name…

Calling it outsourcing, then, is a grave disservice to automation. Outsourcing is selfish and only cares about immediate returns. Whereas automation is forward-thinking and patient — automation trusts that returns will follow.

As was the case with Boxed, an online Costco-type of shopping club, that recently automated an entire warehouse operation center without losing a single job. Instead of chasing immediate returns, CEO Chieh Huang trusted that profits would follow automation:

“Everyone is now praying at the altar of every last dollar of profits to please shareholders. If you invest in your people and treat them well, it’s a different way to increase profits.”

When companies listen to the call of automation—even in the face of immediate shareholder interest—it earns it soul.


Ralph Perdomo is a Research Analyst at Nvoicepay and is passionate about technology and behavioral economics.  He is a Miami native and graduate of Florida International University. When he’s not devouring information on the latest tech trends, you can find him marathon training.