Information technology impact sourcing is a new approach that clients can take when they outsource IT-related work to base-of-the-pyramid (BoP)a suppliers. In this column, I explain why impact sourcing is worthy of greater consideration and support from the IT professional and academic community.
Supply of IT work from the base of the pyramid is growing as diffusion of digital technology and attendant skills becomes almost universal. In theory, BoP supply would mean drawing IT workers from communities in developing countries averaging income levels of less than $2.50 per person per day. In practice, the idea covers a looser sense of IT staff that hail from low-income areas and/or have been excluded from mainstream employment opportunities.
The entire range of business process outsourcing activities can be encompassed by impact sourcing.
Clients can select from a continuum of approaches to BoP outsourcing, as summarized in the accompanying figure:
- Arbitrage outsourcing seeks to bear down on wages and working conditions in order to minimize costs and maximize profits.
- Mainstream outsourcing is a conventional approach that reflects the steady diffusion of outsourcing suppliers from cities to large towns to small towns and beyond.
- Ethical outsourcing (also known as socially responsible outsourcing) takes mainstream outsourcing and requires that it meet certain minimum standards; typically relating to labor practices but also starting to include environmental issues.
- Social outsourcing (also known as developmental outsourcing) differs from ethical outsourcing as fair trade differs from ethical trade. Ethical outsourcing involves existing commercial players with either a commitment to or measurement of adherence to standards. Social outsourcing involves new non-market intermediaries who sit between the client and the BoP supplier.
The key problem for the approaches shown on the left side of the continuum in accompanying figurearbitrage especially but also some mainstream contractingis sustainability.1 They are associated with high levels of staff turnover and negative publicity about "digital sweatshops" and loss of IT jobs in the global North. From time to time, this blows up into public relations disasters for client firms and a high-profile reversal from offshoring to onshoring. In all cases, the bottom-line issue is the bottom line: these approaches can end up raising costs and failing to reap the benefits of low-wage IT staff in developing countries.
So what is the impact sourcing alternative?
As shown in the figure, impact sourcing is a rather loose agglomeration of models, defined as "employing people at the base of the pyramid, with limited opportunity for sustainable employment, as principal workers in outsourcing...to provide high-quality, information-based services to domestic and international clients" and "to create sustainable jobs that can generate step-function income improvement." Its core elements then, are use of BoP workers and an intent that goes beyond simple contract fulfillment to the wider societal impact of the work being outsourced.
Impact sourcing received significant stimulus in 2011 following the release by the Rockefeller Foundation of its report Job Creation Through Building the Field of Impact Sourcing, which demonstrated this activity was already established in countries like India, South Africa, and Kenya.6 (The preceding definitional quotes are taken from page 2 of that report.) Report authors estimated impact sourcing was already a $4.5 billion market employing 144,000 people and "has the potential to be a $20 billion market by 2015, directly employing 780,000 socioeconomically disadvantaged individuals."
The key impact sourcing players are clients, intermediaries (sometimes known as ISSPs: impact sourcing service providers) and suppliers. This is not charity, so the concerns of clients are those one would expect for any outsourcing: cost, delivery times-cale, and quality of service. The heart of the value proposition tends to be cost rather than social impact. The latter gains emphasis for some clients, such as those in the public and non-profit sectors that have taken a lead in impact sourcing, but most clients are attracted by typical cost savings of 40% compared to conventional IT outsourcing routes.
Reflecting the continuum shown in the figure, intermediariesthe ISSPs who buffer the relationship between clients and BoP employeesvary. Some are fairly traditional players in the outsourcing market, looking for new, low-cost sources of IT labor and willing to adhere to corporate social responsibility requirements. Otherssuch as U.S.-based trailblazers Digital Divide Data and Samasourceare non-profits following the social outsourcing approach, for whom the social mission is key. These high-profile intermediaries work across borders, bringing a developmental dimension to IT offshoring. But others work just within national borders; sourcing from urban clients to low-income urban and rural communities.
The sharp end of impact sourcing lies with the suppliers: the base-of-the-pyramid workers who deliver the IT services and who typically live in developing countries. One has to move beyond the slum dweller or peasant farmer stereotype to understand this group. Substantial numbers of the poor have high school diplomas or college, even university, degrees. Even those without these qualifications are increasingly making use of IT. So the entire range of business process outsourcing activities can be encompassed by impact sourcing. Contracts cover document and image digitization, image and video tagging, data entry and processing, call centers, translation, and more.
The wages paid to these employees are low by Western standards and below the average for their own national markets. But those points of comparison are largely irrelevant. Pay rates are significantly higher than averages in the local communities of these staff, even assuming there were other jobs they could take up, with estimates that impact sourcing increases their income by 80%-120%.4 And, beyond this, impact sourcing has been shown to deliver benefits in terms of skills, attitudes, empowerment, social status, and connections.3, 5
Of course, impact sourcing is not without its detractors; being in danger of a pincer movement of criticism from those against IT offshoring and those who disparage impact sourcing's wider analoguesethical trade and fair trade. These critics tend to come from opposite sides of the political spectrum. Opponents of offshoring want government intervention to block free trade although they have been less vociferous about impact sourcing than conventional offshoring; perhaps because the former is still small and has the demonstrable value of bringing work to the world's poor.
Trade critics, by contrast, would argue that impact sourcing interferes with and undermines the due functioning of free markets, introducing inefficiencies and hampering development of a commercial IT sector within low-income locales. Ultimately, such debate is less about evidence and more about ideological position: Do you follow "the business of business is business" maxim or do you believe enterprise can and should be used to address some of society's ills?
As noted earlier, some clients may adhere to the first position, being unaware of or uninterested in the social dimension of impact sourcing and leaving the developmental intent of contracting to the ISSP. But more often clients have some level of social concern that ranges from a veneer of corporate social responsibility to a comprehensive social mission. Integrating that social mission into the outsourcing relationship is a challenge, and one that falls largely to the ISSP.2
At the pre-contract stage, developmental issues must be added in to due diligence. At the contract stage, social impact indicators may need to be developed and incorporated. Relationship governance often requires a longer-than-normal learning curve to bridge the gaps of expectations and worldview that exist between client, intermediary, and supplier. And performance management may demand the development of social return on investment techniques that are unfamiliar to the key players.
All of this makes impact sourcing somewhat different than conventional IT outsourcing models. There is a greater emphasis on learning and knowledge-building as all parties are, to some extent, venturing into the unknown. There is a greater concern with sustainability: a number of small ISSPs seem to have come and gone in the blink of a single contract. This has stranded their base-of-the-pyramid employees without a source of livelihood. And the relative novelty of the business model, the indirect nature of client-supplier relations, and the geographic distances often involved mean trust, image, and reputation matter greatly. ISSPs therefore have to focus heavily on their public relations profile.
The Rockefeller Foundation's support for impact sourcing and its initiatives such as Digital Jobs Africa are helping develop those profiles, but why should their intervention be necessary? Why aren't the bumper stickers of "doing good while doing well" or "give work not aid" enough to drive growth of this new IT model?
The answer is a series of challenges that must be addressed and which the market alone may not solve or may not solve in a foreseeable timeframe. From the perspective of demand, there is a long familiarity curve to be traversed. Vast numbers of potential clients are unaware of impact sourcing's existence (and the lack of immediate meaning in the terminology does not help). Some clients are half-aware but associate the base of the pyramid with backward villagers they would never consider as an outsourcing possibility. And some clients are three-quarters-aware but perceive too great a level of risk.
For the intermediaries, to the issue of sustainability noted earlier, we can add the challenge of scalability. Making a difference to the life of one poor person is a valid endeavor. But impact sourcing needs to make a difference to the lives of hundreds of thousands if it is to be taken seriously as a mechanism for development. ISSPs need help to grow beyond a cottage industry model.
And down at the BoP, there may be millions of possible employees but most are still on the wrong side of the digital divide in various senses. They might have a cellphonea base that some ingenious ISSPs are using for impact sourcingbut the great majority will need broadband connectivity and substantial up-front training investments before they can find themselves on the right side of the divide, with the ability to participate in impact sourcing. Some modelssuch as those based around cellphones, or around breaking contracts into tiny "micro-work" packets, or those seeking to automate quality controlswill require further technical innovations before they can be mainstreamed to the poor.
Whether impact sourcing overall can be mainstreamed and fulfill its potential as a significant development tool is as yet unclearit may remain a niche activity. But I cannot help noticing how very similar this all is to IT offshoring to India 30 years ago: A few brave companies had taken the plunge but the great majority of U.S. and European firms had not heard of the option, or laughed off Indiawhich they saw as a land of bullock carts and maharajahsas a possible IT location. Consider what happened next.
Down at the BoP, there may be millions of possible employees but most are still on the wrong side of the digital divide.
Impact sourcing is unlikely to be the next India as an IT sourcing model. But if it is to grow, it will need the support of the IT community. In part this means adding impact sourcing to the range of IT sourcing options considered. But it also means academic engagement. In the social sphere, all those involved need guidance on business models, best practices, and impact evaluation. In the technical sphere, new technologies are still needed to improve sustainable, high-quality access to digital tools for those at the BoP; and to deliver fast, contextually relevant IT training. If this support materializes then so, too, may impact sourcing's developmental promise.
2. Heeks, R. A model for assessing IT impact sourcing relationships. ICTs for Development (Sept. 27, 2012); http://ict4dblog.wordpress.com/2012/09/27/a-model-for-assessing-it-impact-sourcing-relationships/
a. The base of the pyramid, also known as the bottom of the pyramid, is an economics-derived term referring to the largest, but poorest, global socioeconomic group comprising approximately four billion people.
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