Robert M. Solow: Brains are Better than Brawn

Most – OK many – of us can remember when there was no Internet, when email was a clunky toy for a few that could never revolutionize communication, when computers were huge, slow and really annoying, when wireless was just another word for radio, when a phone sat on a table, hung on a wall or resided in phone booth but never in a pocket or purse and when an Apple was just, well, an apple.

Technology and its continuous advances surround us, it’s embedded in our daily lives to a degree that even the most diehard science fiction fans could hardly have imagined even 20 years ago.

Today technology rules, but it wasn’t always that way.

More than 50 years ago Robert M. Solow, a professor at MIT, the next in my mini-series of the seminal economic thinkers that helped spur modern outsourcing, showed us that technology is the driving factor behind economic growth.

Solow’s growth model was first presented in a 1956 article, A Contribution to the Theory of Economic Growth. His premise was that without “technological progress” growth rates for capital, labor and total production would all remain about the same.

In fact, he found that about four-fifths of the growth in U.S. output per worker was attributable to technological progress. In other words, brains matter way more than brawn if you want to spur economic growth.

His work included a mathematical model which showed “technological change” would be the motor for economic growth over the long haul.  Solow’s growth model presented a framework that formed the basis of modern macroeconomic theory.  In fact, Solow won a Nobel Prize for his work in 1987 due to it’s significance.  In his precise and often aphoristic prize lecture, he said:  “Insiders are sometimes the slaves of silly ideas,” which to me is an early take on the value of thinking outside the box.  “You never know if you have gone as far as you can until you try to go further,” he continued.

For today’s outsourcing firms, the lesson I see is that most outsourcing agreements are transaction-based, meaning that a service provider gets paid for every activity – be it a rear-end in a seat to answer a call, two hands for packaging, or fingers for filing.   If economic growth is achieved from “technical change” then companies that outsource should focus their efforts around paying suppliers for their brainpower and not their brawn, or simply to perform an outsourced activity.  After all – if companies outsource because they believe that another company can do the work better, faster or cheaper – why are today’s deals so focused on simply doing activities?

I’m thinking specifically of Vested Outsourcing’s  Rule #1, which says we should should Focus on the What Not the How, and the next two, Rule #2, Focus on Outcomes and Rule #3, Agree on Clearly Defined  and Measurable Outcomes.

Those rules flow into directly into Vested Outsourcing’s basic mission and they address a big problem I describe in Ailment #2, The Outsourcing Paradox, where a company that decides to outsource can’t really let go and feels it has to define requirements and work scope so rigidly that the outsource provider ends up executing the same old inefficient, transaction-based processes.

That’s not progress, technological or economic.

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