where we can digitize and decompose the value chain, and move the work around, will get moved around. Some people will say, Yes, but you can't serve me a steak.' True, but I can take the reservation for your table sitting anywhere in the world, if the restaurant does not have an operator. We can say, Yes, Mr. Friedman, we can give you a table by the window.' In other words, there are parts of the whole dining-out experience that we can decompose and outsource. If you go back and read the basic economics textbooks, they will tell you: Goods are traded, but services are consumed and produced in the same place. And you cannot export a haircut. But we are coming close to exporting a haircut, the appointment part. What kind of haircut do you want? Which barber do you want? All those things can and will be done by a call center far away.”
As we ended our conversation, I asked Rao what he is up to next. He was full of energy. He told me he'd been talking to an Israeli company that is making some big advances in compression technology to allow for easier, better transfers of CAT scans via the Internet so you can quickly get a second opinion from a doctor half a world away.
A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody, the president of Johns Hopkins University, whom I had just interviewed for this book:
Dear Tom, I am speaking at a Hopkins continuing education medical meeting for radiologists (I used to be a radiologist)... I came upon a very fascinating situation that I thought might interest you. I have just learned that in many small and some medium-size hospitals in the US, radiologists are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of this evidently occurs at night (and maybe weekends) when the radiologists do not have sufficient staffing to provide in-hospital coverage. While some radiology groups will use teleradiology to ship images from the hospital to their home (or to Vail or Cape Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7, apparently the smaller hospitals are shipping CAT scan images to radiologists abroad. The advantage is that it is daytime in Australia or India when it is nighttime here-so after-hours coverage becomes more readily done by shipping the images across the globe. Since CAT (and MRI) images are already in digital format and available on a network with a standardized protocol, it is no problem to view the images anywhere in the world... I assume that the radiologists on the other end... must have trained in [the] US and acquired the appropriate licenses and credentials... The groups abroad that provide these after-hours readings are called “Nighthawks” by the American radiologists that employ them. Best, Bill
Thank goodness I'm a journalist and not an accountant or a radiologist. There will be no outsourcing for me- even if some of my readers wish my column could be shipped off to North Korea. At least that's what I thought. Then I heard about the Reuters operation in India. I didn't have time to visit the Reuters office in Bangalore, but I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing. Glocer is a pioneer in the outsourcing of elements of the news supply chain.
With 2,300 journalists around the world, in 197 bureaus, serving a market including investment bankers, derivatives traders, stockbrokers, newspapers, radio, television, and Internet outlets, Reuters has always had a very complex audience to satisfy. After the dot-com bust, though, when many of its customers became very cost- conscious, Reuters started asking itself, for reasons of both cost and efficiency: Where do we actually need our people to be located to feed our global news supply chain? And can we actually disaggregate the work of a journalist and keep part in London and New York and shift part to India?
Glocer started by looking at the most basic bread-and-butter function Reuters provides, which is breaking news about company earnings and related business developments, every second of every day. “Exxon comes out with its earnings and we need to get that as fast possible up on screens around the world: 'Exxon earned thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core competency there is speed and accuracy,” explained Glocer. “You don't need a lot of analysis. We just need to get the basic news up as fast as possible. The flash should be out in seconds after the company releases, and the table [showing the recent history of quarterly earnings] a few seconds later.”
Those sorts of earnings flashes are to the news business what vanilla is to the ice cream business-a basic commodity that actually can be made anywhere in the flat world. The real value-added knowledge work happens in the next five minutes. That is when you need a real journalist who knows how to get a comment from the company, a comment from the top two analysts in the field, and even some word from competitors to put the earnings report in perspective. “That needs a higher journalistic skill set-someone in the market with contacts, who knows who the best industry analysts are and has taken the right people to lunch,” said Glocer.
The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters delivered news-whether it could disaggregate the functions of a journalist and ship the low-value-added functions to India. His primary goal was to reduce the overlap Reuters payroll, while preserving as many good journalism jobs as possible. “So the first thing we did,” said Glocer, “was hire six reporters in Bangalore as an experiment.
We said, 'Let's let them just do the flash headlines and the tables and whatever else we can get them to do in Bangalore.'“
These new Indian hires had accounting backgrounds and were trained by Reuters, but they were paid standard local wages and vacation and health benefits. “India is an unbelievably rich place for recruiting people, not only with technical skills but also financial skills,” said Glocer. When a company puts out its earnings, one of the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for distribution. “We will get that raw data,” he said, “and then it's a race to see how fast we can turn it around. Bangalore is one of the most wired places in the world, and although there's a slight delay-one second or less-in getting the information over there, it turns out you can just as easily sit in Bangalore and get the electronic version of a press release and turn it into a story as you can in London or New York.”
The difference, however, is that wages and rents in Bangalore are less than one-fifth what they are in those Western capitals.
While economics and the flattening of the world have pushed Reuters down this path, Glocer has tried to make a virtue of necessity. “We think we can off-load commoditized reporting and get that done efficiently somewhere else in the world,” he said, and then give the conventional Reuters journalists, whom the company is able to retain, a chance to focus on doing much higher-value-added and personally fulfilling journalism and analysis. “Let's say you were a Reuters journalist in New York. Do you reach your life's fulfillment by turning press releases into boxes on the screen, or by doing the analysis?” asked Glocer. Obviously, it is the latter. Outsourcing news bulletins to India also allows Reuters to extend the breadth of its reporting to more small-cap companies, companies it was not cost-efficient for Reuters to follow before with higher-paid journalists in New York. But with lower-wage Indian reporters, who can be hired in large numbers for the cost of one reporter in New York, it can now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore content operation to three hundred staff, aiming eventually for a total of fifteen hundred. Some of those are Reuters veterans sent out to train the Indian teams, some are reporters filing earnings flashes, but most are journalists doing slightly more specialized data analysis-number crunching-for securities offerings.
“A lot of our clients are doing the same thing,” said Glocer. “Investment research has had to have huge amounts of cost ripped out of it, so a lot of firms are using shift work in Bangalore to do bread-and-butter company analysis.” Until recently the big Wall Street firms had conducted investment research by spending millions of dollars on star analysts and then charging part of their salaries to their stockbrokerage departments, which shared the analysis with their best customers, and part to their investment banking business, which sometimes used glowing analyses of a company to lure its banking business. In the wake of New York State Attorney General Eliot Spitzer's
