Knowledge-Intensive Globally Distributed Work

World Wide WorkPage 1

World Wide Work:

Knowledge-intensive Globally Distributed Work

Prepared for the

Emerging Industries Section,

Department of Industry Science and Resources by

Peter Morris

Telesis Communications

20 Bannister Street,

Fremantle, WA, 6160

Executive Summary

Knowledge-intensive service (KIS) industries are at the heart of the fastest growing sectors of the global economy. In the OECD they generate over US$ 1 trillion in revenue each year. The comparative “invisibility” and integration of much of this work into all facets of modern developed economies means its importance can be easily underestimated: in fact KIS industries employ twice as many workers as the world’s automobile industry.

Revenue for KIS – financial, computer and information, legal, accounting and management consulting, research and development, and architectural, engineering and technical services – within the OECD economies is growing at 8 per cent per annum. (More detailed definitions of these sectors are at Appendix 1.)

In the 15 years since 1985 the number of KIS workers in Australia has more than doubled to 863,000, or 9.7 per cent of the workforce. While Australian KIS sectors have grown significantly through the last decade they have lagged KIS sectors in comparable economies. If they had experienced the same rates of export growth during the 1990s, then more than US$1billion. would have been added to Australia’s GDP.

From an international perspective Australia’s KIS workers enjoy a strong competitive advantage internationally, based on:

• a strong international reputation for their competence and the quality of their work;
• the diverse and multi-cultural background of many;
• low rates of pay compared with KIS colleagues in other economies; and
• an ideal time zone to work asynchronously with Europe and North America and to respond in real time in the Asia-Pacific.

In addition to the greatly increased importance of knowledge in almost every part of the economy, the environment for KIS exports supported by information and communication technologies (ICTs) – referred to here as World Wide Work (WWWk) - is further enhanced by the:

• trend to greater liberalisation of regulations covering trade in services;
• increasing use of information and communications technologies in business and the resultant continuing digitisation of work;
• demand for high quality knowledge workers while containing employment costs;
• push to outsourcing and “modularisation” – or project-style structuring - of work; and
• the growing importance of shorter time to market and improved customer service as sources of competitive advantage.

The deregulation of international trade barriers has progressed significantly in recent years but impediments remain. For KIS exports these usually involve: requirements for local presence and nationality; restrictions on foreign ownership; and restrictions in recognising foreign qualifications or expertise.

Australian companies have been rapid adopters of information and communication technologies. Computers are now ubiquitous in virtually every workplace and internet connections and organisational Web sites are also becoming extremely common. This provides an essential technology foundation for WWWk.

Australia’s traditionally egalitarian wage structure has resulted in salary levels for our KIS workers which are commonly 10-60 per cent lower than for equivalent professional workers in other developed economies. The comparatively weak Australian dollar adds to this cost-competitiveness.

Outsourcing, or contracting out, has become widespread in many countries over the past decade. This has forced organisations to modularise, or convert work into projects, to enable it to be transferred outside. This is an important change in business processes which supports WWWk’s adoption.

One effect of globalisation, and the resulting increasingly competitive business environment, has been to make the time taken to get new products and services to market a major source of competitive advantage. Research has shown that products developed 50 per cent over budget but on time, are more profitable than those running six months late.

Through the application of ICT’s, some of the impediments to export have been significantly reduced. These hard and soft technologies can greatly assist in the ability of small KIS firms to deliver their services.

These techniques also have profound potential implications for other sectors of the Australian economy. By supplementing their export drives with WWWk techniques, many Australian companies – for instance manufacturing or commodity producers - would be able to enter overseas markets at a higher level on the value chain, and more cost effectively. Learning the techniques to manage distant relationships better than other countries offers Australia’s “distance challenged” economy enormous potential benefits. The same opportunities exist for regional and rural companies both within the domestic economy and in building their export capacity.

Exploiting these opportunities, particularly through WWWk, requires close examination of KIS work and how it can be best managed. Many distributed work projects which have taken a technology-centric approach, without considering the personal and management implications, have failed. Developing successful collaborations between groups physically removed from each other creates special demands.

This is particularly true with KIS. Managers delivering these services through WWWk need to be aware of a wide range of issues which are vital but often unseen elements of traditional workplaces, including:

• the level of codified and tacit knowledge required to complete a project;
• whether the problems are “tame” or “wicked”; and
• the importance of context.

Codified knowledge refers to knowledge that can be recorded; standard operating procedures, policy manuals, legislation, tax regulations etc. Tacit knowledge is generally learned through experience, knowledge learned through doing as opposed to that gained through reading, for instance.

Tame problems can be difficult to solve but a person experienced in the field will generally have a good sense of what the solution will be. Solutions to tame problems are generally recognisable as being either right or wrong. The answers to wicked problems are rarely predictable before work begins and an “answer” may not be a definitive solution.

Low context work can generally be done without liaising with other members of the work team. Work categorised as high context requires a lot of interaction and communication with colleagues and with clients often to get the correct “nuance”.

Within the services sector Australia’s greatest competitive advantage lies in knowledge intensive services. This sector is growing very quickly and the work commands high salaries. However, the work also tends to be at the more complex end of the above scales.

Achieving this potential will require technology, sectorally specific standards and procedures and a new type of manager. These managers will need to be expert at managing work involving teams dispersed around the world. In this paper they have been called Virtual Project Managers (VPM). A VPM has an excellent understanding of the organisation(s) involved in the project, the technical skills required, cultural awareness and is experienced in project management.

Australia has an exceptional record in a whole range of creative endeavours: scientifically, technically and culturally. But it is only when this work can be packaged (or codified) - as a patent, an academic article or as a film, book or CD – or the creator emigrates, that the world knows anything of the work.

Australia’s services sector is large and well developed. Services overtook the production and sale of goods in their contribution to the economy earlier than other developed countries. This provides an excellent base on which to build KIS exports, WWWk can assist further.

The demand for KIS workers is growing throughout the world. Companies’ capacity to access skilled knowledge workers is becoming more and more important in determining whether they remain competitive.

Not only does Australia already have a reservoir of KIS workers, but the combination of WWWk techniques and its lifestyle could make a very attractive package to attract skilled migrants. Where in the past, these KIS professionals may have considered a move to Australia tantamount to professional suicide, a well developed WWWk-based work environment could tip the balance in Australia's favour in the future.

Any decline in the standard of Australia’s tertiary education system would pose a threat to our capacity to fully exploit the potential market for KIS exports. The likely rise over time in the wage levels of KIS professionals may also prove a threat, but this should not be overestimated.

The factors which are most likely to be critical in determining the potential for various KIS sectors are:

• the importance of speed to market in particular industries;
• whether the work is WWWk-friendly (whether it tends to require more codified rather than tacit knowledge, comprises more tame rather than wicked problems is low context); and
• the difference in relative wage rates.

Based on these criteria, engineering, software development and business services are particularly well suited to WWWk.

The aXcess car projects and the role of the International Legal Services Advisory Council (ILSAC) are both excellent examples of successful networking initiatives. They have brought together SME’s from the automobile component and legal sectors respectively and built organisations which have helped address many of the structural impediments smaller firms encounter in trying to break into overseas markets.

Many Australian KIS companies are hindered in exploiting these opportunities due to:

• their lack of size, limiting their capacity to sustain significant export marketing programs;
• their distance from markets, particularly “culturally compatible” markets;
• regulatory impediments (the significance of this varies from market to market and sector to sector);
• the lack of accepted WWWk operating protocols and standards within KIS sectors;
• a limited number of managers capable of overseeing WWWk projects;
• an international economic image of Australia dominated by farming and mining; and
• non-competitive pricing of high bandwidth and international telecommunications services.

A specific form of networking is capturing the “bow wave” effect generated by existing exporters. This can take two forms. The first is to facilitate the development of demand clusters of firms which address a particular market need. The other is to link potential KIS exporters with existing manufacturing or resources exporters to value-add to the tangible products while exposing the service providers to overseas markets.

The continuing regulatory impediments to entering some overseas markets are significant barriers for KIS companies. The effect these barriers have is even greater for SME KIS companies as they seldom have the resources to sustain a lengthy campaign to negotiate their way around these barriers.

Standard operating procedures for each KIS sector are critical “soft technologies” for WWWk. These protocols would enable two organisations in a particular sector to quickly establish a collaborative WWWk project with a solid foundation of basic procedures on which they could overlay their task-specific requirements.

To support the diffusion of WWWk there is a need for education and training in the management and operational issues involved. This needs to be offered to professionals – most likely on a sector-by-sector basis - as well as being integrated in post-graduate and under-graduate KIS-based degree programs.

Government has a legitimate role to facilitate Australia as a world-class KIS provider. Although the economy has moved from being as heavily dependent on the resource sectors as it once was perceptions often lag reality. The ability of Australian lawyers, for instance, is well known within the legal fraternity of London and other centres but in many other sectors and regions our economic reputation is still largely based on a profile which is at least 20 years old.

The cost of telecommunications services in Australia remains high, by world standards. This is particularly true in relation to two areas which are absolutely critical to the development of WWWk: broadband capacity and overseas telephone calls. Once again, these costs are even more onerous for SME’s. These more advanced services are often packaged with corporate users in mind and are priced accordingly. Few SME’s have the negotiating power to demand the rebundling of products to suit their needs nor to press for lower prices.

Acknowledgements

The research for chapter 3 of this paper, “Collaborating over Time and Space”, was undertaken by Professor Simon Kaplin of the Distributed Systems Technology Centre, University of Queensland. The comparative statistical analysis of the market for knowledge-intensive services was completed by Nick Pappas of the Centre for Strategic Economic Studies, Victoria University of Technology. Danny O’Dea from the Australian Bureau of Statistics also assisted with the gathering of this data. Dr John Gray of the Australian Expert Group in Industry Studies and the Department of Management at the University of Western Sydney assisted with some of the case studies.

1. Introduction

The great strength of Indian information technology has been the software equivalent of all-night office cleaning: fixing bugs while the west sleeps, and writing enormous labour intensive programmes.

The (London) Independent, 22 February 2000[1]

The Indian software industry has exploded in the last decade, expanding its turnover by at least 25%, sometimes by as much as two thirds, each year through the 1990’s. Companies in Bangalore – the capital of the industry – have grown dramatically in both number and size. While this story is being replicated, to some extent, by knowledge-intensive service companies around the world a striking feature of the Bangalore experience is that the vast majority of these companies’ clients are outside India, most often in the United States. Although an increasing number of Indian software engineers are working in the US the majority work online from India.

The Indian industry has experienced this massive growth by capitalizing on its:

• highly skilled workforce of software engineers;

• substantial wage differences;

• “off-peak” time zone, when compared with the US; and

• the necessity for the software industry to be able to ensure rapid time to market.

As the proportion of knowledge work in developed economies has increased, been digitised, and more recently “networked”, interest has grown in the mobility of work. This has been characterised by suggestions that in the near future all knowledge work will be moved to the workers, reducing the importance of location and ending commuting. In most cases these predictions have proven to be unfounded and naively optimistic. The Indian success stands out for a number of reasons, and provides some important clues to enabling and managing globally distributed work. The most critical factors are: the focus on business-to-business (B2B) distributed work; and the industry culture and the nature of software programming.

As with India’s booming software industry Australia has significant competitive advantages in exporting a range of knowledge-intensive services (KIS) online. To capitalise on this opportunity Australia has:

• a strong international reputation for the quality and competence of its professionals across a range of sectors and disciplines;

• in many sectors there are significant wage differentials between Australian professionals and their overseas colleagues; and

• the ideal time zone for asynchronous work, mirroring much of Europe and North America’s work day.

World Wide Work

This paper is concerned with high value, knowledge-intensive services (KIS) work such as that performed by workers in:

• the financial services industries,

• computer and information services,

• legal, accounting and management consulting,

• marketing,

• research and development, or

• architectural, engineering and technical services[2].

These KIS are most often undertaken for clients, sometimes in conjunction with local partners, located in time zones largely opposed to Australia’s working day. It makes heavy use of Information and Communications Technologies (ICT). In some cases these technologies deliver the KIS, but in most cases it supports its delivery and supplements personal contacts. This type of work is referred to here as World Wide Work (WWWk).

The sectors of the Australian workforce best suited to WWWk are determined primarily by three criteria:

• wage relativities (discussed further in section 2);

• the industry culture and work “context” (section 3); and

• the premium placed on speed to market by various sectors (section 4).

An increasing number of companies are receptive to working in these new and different ways (see the case studies below). Nonetheless the challenge of marketing this approach and persuading clients and partners overseas to pursue these methods cannot be underestimated. Another major obstacle is in acquiring an understanding of how to manage virtual projects between different time zones and over distance. Recent generations of ICTs have provided much of the infrastructure to support some kinds of knowledge-intensive work. Managerial and social issues are even more important.

The Expanding Possibilities for World Wide Work

The environment is right for WWWk because of:

• the liberalisation of trade;

• the growing networking and digitization of work;

• a continuing drive for cheaper labour costs;

• the increasing trend towards outsourcing and the modularisation of work – (A survey of larger US companies found outsourcing of Strategic Business Services[3] grew at 26% in 1997 to be worth US$85bn.);