Learning from Customers in Outsourcing: Individual and Organizational Effects
Executive Summary — In farming out work to an external service provider, companies often count on volume-based learning--the idea that outsourced workers will build experience and improve their productivity if there is a large volume of work for them to do, and that the bigger the volume, the more productive and efficient they'll eventually become. However, there are several factors that challenge that education process. This paper explores whether and how repetition can breed competence in a business setting, using data from a provider of outsourced radiological services. Research was conducted by Harvard Business School professor Robert S. Huckman, Jonathan R. Clark (HBS PhD 2010) of Pennsylvania State University, and Bradley R. Staats (HBS MBA 2002, DBA 2009) of the University of North Carolina at Chapel Hill. Key concepts include:
- In addition to technical aspects of the task, volume-based learning depends on the interpersonal interactions between the individual completing the task and the customer.
- The rate at which a worker learns depends independently on the customer, knowledge domain, and technology within which the worker accumulates volume-based experience. Workers learn faster from completing an individual task for a specific customer than they do from completing multiple tasks for multiple customers.
- Spreading a worker's experience over multiple customers may hinder the learning process, particularly with respect to the needs of specific customers.
The ongoing fragmentation of work has resulted in a narrowing of tasks into smaller and smaller pieces that can be sent outside the organization and, in many instances, around the world. Not surprisingly, this trend is shifting the boundaries of organizations. Though experience and productivity improvement may be seen as key benefits of this trend, little is known about how this shift toward outsourcing influences learning. When producing a unit of output, the content of the knowledge gained can vary dramatically from one unit to the next. One dimension along which a unit of output can vary-a dimension with particular relevance in outsourcing-is the end customer to whom it is delivered. The performance benefits of such customer experience remain largely unexamined. We explore the customer dimension of volume-based learning in the context of outsourced radiological services, where individual doctors at an outsourcing firm complete radiological reads for hospital customers. We examine more than 2.7 million cases for 1,431 customers read by 97 radiologists and find evidence supporting the benefit of accumulating customer-specific experience at the level of individual radiologists. Additionally, we find that customer depth for the entire outsourcing firm (i.e., total volume for a given customer across all radiologists at the firm) also yields learning and that the degree of customer depth moderates customer specificity at the individual level. We discuss the implications of our results for the study of learning and experience as well as for the providers and consumers of outsourced services.