By: Fiona Walsh & Guillaume Poznanski, Authors of the 2014 study and survey “Social Sourcing and Socio-Commercial Outsourcing” conducted for University College Dublin.
Impact Sourcing (IS) combines commercial objectives to provide digitally enabled services with a development scheme to hire and train individuals, marginalised because of race, religion, gender, disability, location and income, who live at the bottom of the pyramid (BOP) with few opportunities for good employment. IS can be seen as a way to leverage a €400 billion outsourcing industry in order to create stronger employment retention rates and improved engagement. Approximately 10% of people employed in the BPO industry fall into the category of IS workers.
The theoretical foundations of IS may be related to research by Prahalad and Hart in 2002 regarding the commercial benefits of involvement with low-income marginalised groups. Public awareness of Corporate Social Responsibility (CSR) has also forced commercial businesses to work on implementing social objectives as strategic goals along with earning a profit. In 2013, Malik and Nicholson conceptualised IS into two categories: Social Outsourcing (SO) and Socio-Commercial Outsourcing (SCO) based on CSR.
The social enterprise concept has gained increasing popularity since the late 1990’s. In their work on self-determination and new social entrepreneurs, Jed Emerson and Fay Twersky in 1996 defined “social enterprise” as “a revenue-generating venture founded to create jobs or training opportunities for very low-income individuals, while simultaneously operating with reference to the financial bottom-line”.
IS is a viable business option for clients and can sometimes offer higher standards of quality than traditional BPO service providers. Cheaper options for any product or service tend to be perceived with lower quality, but not in this case. Employees of the non-profit organisations examined in our study conducted in 2013-2014 are from the poorest socio-economic group. These companies have lower overheads and, therefore, the services they offer can be priced competitively.
In 2011, Monitor Group anticipated that a number of trends will drive the growth of the IS market in the coming years. For example: organisations and governments are under pressure to source and deliver non-core services in a cost efficient manner; a trend exists for archive digitalisation, be it documentation, images, journals, newspapers or books. There is also an inherent desire to digitise old data while they are still salvageable; advances in global infrastructure will reach into more remote areas and open up opportunities to allow new regions and countries to compete for outsourcing work.
Why Impact Sourcing is Needed
There is criticism and debate about global outsourcing in a number of areas, such as the unequal distribution of wealth, unemployment issues related to the low wages offered to marginalized communities and the authenticity of social development objectives of commercial organisations. Nonetheless, in the last decade especially, the use of Information and Communication Technologies (ICTs) has become an important part of the social development movement.
The Monitor Group reported in 2011 that IS increased the net income of marginalized people (40% to 200%) thereby facilitating family spending on health and education. The same report also claimed that IS creates business profitability for impact sourcing organisations established in small cities and rural areas by reducing approximately 40% of the total comparative operational expenses in metropolitan areas.
IS is characterized by three attributes of social enterprise: social development goals, business strategy and innovation. Organisations in the Social Outsourcing category are different from commercial outsourcing organisations because they conduct non-profit or for-profit ITO or BPO outsourcing activities, instigated specifically to achieve the social development of marginalized people.
The second class of IS, Socio-Commercial Outsourcing, derives from CSR – “doing well by doing good”. CSR is typically presented as a management strategy as it can improve the perception of its core values to clients and external parties and increase a firm’s long-term competitiveness. This class of IS includes all outsourcing activities generated as a result of CSR initiatives of a business for the social development of marginalized people which ultimately grows the bottom-line.
As with any domain of activity in its early stages, there is a range of different participants using a variety of IS models to provide services. The following entities in Table 1.1 reflect some of the models and illustrate key problems and operating limitations that need to be addressed as these organisations and the field of IS develops. These impact sourcing service providers (ISSP) employ individuals with a variable range of educational backgrounds.
Table 1.1 – Case Studies
DataHalli was established in 2006in Karnataka India as a pilot project under the general CSR objectives of the JSW Group, its parent company. DataHalli employs around 300 young women and provides non-voice BPO solutions to industry, specialising in process manufacturing. The company’s aim is to empower women in rural areas and change their lives by offering meaningful employment.
These women learn to view themselves as valuable contributors and responsible members of the organisation. The income earned improves their family’s standard of living and provides them the ability to fund additional education. At the entry level, DataHalli employees earn an average monthly income ranging from 3,000 Rupees (€35) to 5,000 Rupees (€60) depending on experience.
Digital Data Divide
Digital Data Divide (DDD) is a BPO service provider established in 2001, operating in Cambodia, Laos and Kenya. DDD employs young people while sponsoring them to go to university and gain a degree. Staff work a six-hour day and attend university in the evenings.
DDD has a 3-8 month training program to build basic computer skills and master business English, at the end of which, trainees are hired as BPO operators.
Typically, staff proceed to better jobs with alternative employers, however, there are managerial positions within DDD for those who exhibit the required skills and wish to do so. DDD graduates on average earn four times the average wage for their country and their living conditions are vastly improved, for example, a DDD graduate would have running water in their home as opposed to an outside well.
iMerit Global Smartsourcing
iMerit born out of The Anudip Foundation, a non-profit organisation that sets up IT training centres in rural India, provides IT and BPO services. Providing employment to the desperately poor Ganges Delta region, it became an independent company in 2012. They have since expanded to operate in other areas of East India, such as Kolkata and Bengal.
They focus on employing youth and women in these areas who are graduates of The Anudip Foundation’s MAST (Market Aligned Skill Training) training program. MAST offers technical training in a wide range of areas from desktop publishing to cyber café management. They also offer modules in workplace culture, workplace English, entrepreneurial skills and business basics. On average, their staff earns roughly three times more than they had in previous informal employment.
IndiVillage is a BPO service provider established in 2009, located in Yemmigannur, Andhra Pradesh, India, employing 50 staff. Their purpose is to bring the benefits of globalisation to rural locations in India where opportunities for employment did not exist.
The profits from the business are reinvested in the local community. IndiVillage sponsors the education of 280 local children, underscoring their belief that it is critical for empowering people in disadvantaged communities. Their future employees will be better educated, have relevant skills and will, therefore, require less training investment.
Invincible Outsourcing is a BPO service provider in Johannesburg, established in 2012 and part of the Maharishi Institute. Students complete a training program to equip them with the skills to perform basic call centre duties whilst completing a two-year foundation program to enable access to a BA degree program.
Students receive a proportion of the revenue gained and the surplus goes to pay for their tuition fees. Using tuition-reimbursement principles, the students use part of their earnings to repay the fees to fund their education. In addition to their education, students gain valuable real life experience by working in a professional environment. With this business model, all revenue raised is for the benefit of the students.
VADS Berhad is a BPO and ICT service provider based in Malaysia. The business was established in 1991 as a joint venture between IBM and Telekom Malaysia. In 2010, a team was commissioned to brainstorm ways to reduce staff attrition. At that time, attrition rates for BPO services were on average 35% annually.
The vision was to employ people with disabilities as Kuala Lumpur had little opportunity for disabled people. In order to provide a suitable working environment for a disabled team, VADS installed a wheelchair ramp, disabled toilets, and special desks and equipment to enable them to work efficiently. VADS has a continuous improvement program to ensure their disabled staff have access to the latest disability aids.
Operational Benefits of the Impact Sourcing Model
The main benefits noted by our survey respondents relate to staff management aspects such as lower attrition rate and staff satisfaction which account for 50% of the results. One can also note in Graph 1.2 that 33% of respondents confirmed that 80-100% of their customers would choose their organisation because of their IS model.
Graph 1.1 – Benefits of Impact Sourcing model
Graph 1.2 – Customers selecting business because of Impact Sourcing model
With regard to the decision to create a BPO or ITO business with an IS model, 93% of the respondents pointed out their primary motivations were lower staff attrition rates, lower staff costs, ease of recruitment and skill set labour pool (see Graph 3.1). Furthermore, 67% of the companies involved in impact investing would do so in order to improve the quality of life of their employees rather than working on a socio-commercial goal or CSR strategy (see Graph 3.2).
Graph 3.1 – Decisional influences to invest in an Impact Sourcing model
Graph 3.2 – Is your initiative part of a global CSR enterprise?
Lower attrition rates are typically the biggest factor influencing investment in an IS model. In 2010, VADS Berhad, working with The Global Sourcing Council, established a project team to address the high attrition rates within their BPO teams. Their objective was to answer the question: “What does it take to create a high performing and sustainable BPO operations team?” Two integral components were identified:
- Alternative resource that is not from the traditional resource pools.
- The creation of a structured enablement program (the disabled employee model).
Following the above insights, VADS Berhad looked to shift their primary resource pool to people with disabilities, deciding to “disable disabilities at the workplace”. To ensure their disabled staff had the latest disability aids, equipment, and technology to allow them to perform their jobs, they formed a working committee with representation from varying functions. The aim of the committee is to continuously improve the working environment and conditions for each new entry of disabled staff.
VADS Berhad attrition rate for their disabled team in 2011 was 4%, compared with the industry standard for BPOs that were 35% annually at that time.
The business model of sponsoring students naturally reduces attrition rates as employees are committed to a fixed term education program. In the case of Invincible Outsourcing, this is a two-year program. For Digital Data Divide, the term varies as sponsorship is granted for a range of courses.
In the example of a rural business model, attrition rates are low and tend to stay low, as there are no other potential employers in the immediate vicinity.
On the issue of whether IS caused the compromise of any services on offer, our survey revealed an interesting answer. The highest response to this question was: “nothing compromised.” However, respondents did comment that the scope of services on offer was limited depending upon the skill sets of the local labour pool.
Five of our six survey respondents who have pure IS models, the exception being Vads Berhad, felt that some of their clients choose them due to their business model, and two of the non-profit organisations claimed all clients choose them for this reason.
According to a 2012 report from the International Labor Organisation, half of today’s global population is under 25 years old with 90 percent of these living in poor countries and 88 million are jobless. Many are growing up in rural areas where there are very little work opportunities. Furthermore, 152 million youth live on employments that offer no tangible prospects to get out of poverty. Disheartening statistics? Yes. Hopeless improvement probabilities? No. Social enterprise goals, especially in the ICT sector, are providing viable exits from poverty and illiteracy for millions of people around the globe. Concerted efforts to continue to do good by doing well holds enormous potential.
It is true that while Impact Sourcing is gaining momentum and attracting attention, there are still very few BPO and ITO companies operating with socially responsible business models. However, the BPO and ITO market sector is set to continue its growth in the coming years, and there will be more opportunities for the creation of new and the expansion of existing IS ventures.
About the Authors:
Fiona Walsh is originally from Birmingham, England and now resides in Wicklow, Ireland. She is a graduate student studying for a Masters Degree in iBusiness (Innovation through ICT) at Michael Smurfit Graduate School of Business at University College Dublin in Ireland. She has a background in Applied Chemistry and previously worked for Oriflame, a global cosmetics company for over 14 years starting her career in new product development before entering the professional IT sector six years ago.
Guillaume Poznanski is originally from Paris, France and is now based in Dublin, Ireland. He is an IT Systems Specialist with over 10 years of experience in IT Service Management. Guillaume holds a Bachelor of Arts Degree in Business Information Systems from Liverpool John Moores University and is studying for a Master’s Degree in iBusiness (Innovation through ICT) at Michael Smurfit Graduate School of Business at University College Dublin.
Table A: Taxonomy of Impact Sourcing Organisations
Table B: Walsh & Poznanski 2014 Survey Results