This Week's Herman Trend Alert

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  The Herman Trend Alert

March 7, 2007

Don't Offshore, Lakeshore

A fact of corporate life is that there is constant pressure to "beat yesterday," to increase corporate earnings, and push more profit to the bottom line. In their drive to increase profits, many organizations have resorted to outsourcing outside of their home countries. We call that "offshoring" and for years, The Herman Group has been sounding the alarm that, in most cases, the savings from offshoring are simply "not worth the effort."

Recently, Joyce learned of an extraordinary United States company that faced this issue and rather than offshoring, they decided to "lakeshore." Lakeshoring means outsourcing to another organization within the home country. Sedgwick CMS, one of the few organizations to earn the Employer of Choice® designation for three years in a row, embraced this seemingly counterintuitive idea.

When Sedgwick faced the choice, "to offshore or not to offshore" their claims processing unit, unlike its major competitors, its enlightened CEO David North made the executive decision that they would not. Instead, he charged his troops with finding a location within the United States where there was an available workforce with significantly lower costs. The result: the "Lakeshore Project," including their facility in Dubuque, Iowa.

The Lakeshore Project, providing "jobs, training and modest salaries for employees in small communities throughout the country, has led to savings for customers," North said. The real payoff for the company is in lower employee turnover, thus providing a higher continuity of service and bottom line savings. In fact, in the first six months of the program, the company did not lose one employee at the new facility.

In 2004 by Minnesota’s Northeast Higher Education District coined the term to promote its tech-prep graduates. Called the "True North" initiative, this program, using federal funds, encourages companies to locate in the region.

Lakeshoring avoids many of the challenges associated with offshoring: language and cultural differences, quality control, resentful domestic employees (though Sedgwick calls them "colleagues"), shrinking salary differentials, high turnover, deficient infrastructure, and even the loss of social capital. Our forecast: in the years ahead more organizations, large and small, will resort to lakeshoring, rather than offshoring.


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