The controversial topic of offshoring U.S. jobs may have been shoved out of the headlines by recent events, but it remains front and center for senior business leaders operating in an increasingly global, competitive economy.
To give MBAs a deeper understanding of this complex issue, HBS professors Richard H.K. Vietor, Rawi E. Abdelal, and Jan W. Rivkin created a classroom exercise that asked HBS students to assess the potential "offshorability" of more than 800 occupations in the United States.
The exercise replicated a controversial 2007 study by Princeton economist Alan Blinder, where he determined that between 22 and 29 percent (25.2 to 31.8 million) of all U.S. jobs are potentially offshorable. Those cited included high-paying, high-skill jobs such as financial analyst and microbiologist.
Rivkin and former research associate Troy Smith reported the students' results in a working paper, "A Replication Study of Alan Blinder's 'How Many U.S. Jobs Might Be Offshorable?'" [PDF].
"The offshoring phenomenon has implications for policymakers, business leaders, and members of the workforce," Rivkin says. "These are the three perspectives we wanted students to grasp via the exercise and the subsequent discussion." Seventeen faculty members from the Business, Government, and the International Economy course and the Strategy course were involved in the exercise and discussion.
“The offshoring phenomenon has implications for policymakers, business leaders, and members of the workforce.”
As background material, students read an overview case, "The Offshoring of America," as well as "Monitor's Opportunities in India," a case that follows the decision-making process of the consulting group's CEO as he considers which of the firm's functions, if any, to move to India.
"The case raises an uncomfortable question: Why should Monitor pay a Harvard MBA top dollar to conduct business research in the United States while an Indian Institute of Management graduate could do the work just as effectively in Delhi for much lower pay?" Rivkin asks. "I think that brought home to many students that offshoring could affect them personally."
Nearly 900 members of the MBA Class of 2009 participated in the exercise, with students divided into learning teams of five or six individuals. The exercise was conducted via an intranet site and designed in partnership with HBS's Educational Technology Group.
“The idea that you might offshore the reading of radiology films … would have been unthinkable 25 years ago.”
Each team assessed the potential offshorability of 20 occupations. (The positions of financial analyst and management analyst were included in the mix for every team.) Team members could click on each occupation ("Architectural Drafters," for example) to review information from a database developed for the U.S. Department of Labor. The database, O*NET, describes hundreds of occupations and breaks out the most relevant tasks, knowledge, and skills related to a particular job, rating the importance of each.
After considering this information, the learning team created an "offshorability rating" between 0 and 100 for each of its assigned occupations, with a rating of 100 indicating that the task (such as data entry, for example) could be performed with complete ease and success from offshore. A rating of 0, meanwhile, might be assigned to an occupation such as child-care worker or short-order cook, where the laws of physics simply prevent a task from taking place at a distance. As in Blinder's study, the occupations were also slotted in one of four categories: An offshorability index of 100 to 76 was ranked as "highly offshorable," or Category I; 75-51 (Category II) was "offshorable"; 50-26 (Category III) was "non-offshorable"; and 25-0 (Category IV) was "highly non-offshorable."
In assigning their ratings, teams were asked to take into account the potential for an occupation's tasks to move offshore over the next 10 years, assuming a normal rate of technological progress (particularly in the area of electronic communications). They also had to indicate a likely destination for an occupation if it received a rating of 50 or higher. (For teaching purposes, the assortment of occupations was weighted more heavily toward those that Blinder had found to be offshorable and those with higher levels of education. The goal, Rivkin notes, was to counter any preconception that offshoring is limited to low-skill jobs.)
In a further real-world complication, students sometimes encountered occupations involving multiple tasks that can be performed separately. As an example, Rivkin cites the job of bill collector, which includes the tasks of telephoning the debtor and keeping records (both potentially offshorable) but also visiting the debtor in person. In such a scenario, students were told that their rating should reflect whether various parts of a job could be offshored, and if so, how well each part could be performed.
Unprecedented Array of Options
Results showed that Blinder and the HBS students agreed on the four-category assessments for 462 of 774 occupations, or a rate of 60 percent. (As an aside, few, if any, of the students knew of Blinder's original study, and none were given access to the decision tree he used in categorizing an occupation's offshorability.) By Blinder's estimate, between 22 and 29 percent (25.2 to 31.8 million) of all U.S. jobs are potentially offshorable; the students, with an estimate of between 21 and 42 percent (28.4 to 57.2 million), arrived at a much higher upper end for these numbers. In both cases, Rivkin emphasizes, these are estimates of potentially offshorable jobs, not predictions of the future.
"We wanted students to understand that, as future business leaders, they are likely to face an unprecedented array of options concerning what they can do where," Rivkin says. "The idea that you might offshore the reading of radiology films or the research done by consulting firms would have been unthinkable 25 years ago."
From a business leadership perspective, students also gained a greater understanding of the complexities involved in offshoring decisions.
"Increasingly, jobs are being viewed as groups of tasks that can be bundled, unbundled, and sent to different places," remarks Rivkin. "Also, offshoring is unlikely to involve just one move; changes in national conditions may force you to move a task from country to country over time."
An Offshore Reversal?
The exercise and discussion also raised the unsettling possibility that offshoring could come to an end just as quickly as it began.
"The offshoring of activities is predicated on a huge number of non-obvious, sensitive policy choices," Rivkin says, citing India's economic liberalization efforts of the early 1990s and the Chinese government's relatively recent decision to open its economy. "Many of our students have lived only in a world of increasing globalization. It's easy to conclude that the world will continue to become more and more integrated, but globalization is not necessarily a one-way street."
The message for MBAs seems to be to prepare for a world in which economic tasks are likely, but not certain, to be increasingly mobile.