Online outsourcing and the future of work

This article is based on the 2-part interview with Korok Ray, a labor economist who specializes in future work. Korok earned his PhD in Economics from Stanford University and has taught in the University of Chicago and Georgetown University. He has also served in the Council of Economic Advisers of the White House from 2007 to 2009 during the historic Financial Crisis. Currently, he is an associate professor at the Mays Business School of Texas A&M University and the director of the Mays Innovation Research Center.

Derek Gallimore first encountered Korok when he read the latter’s article, The Future of Outsourcing: The Largest Economic Transformation Ever, on the Foundation for Economic Education’s website. Korok is kind enough to allow Outsource Accelerator to host one of his newest articles, Online Outsourcing and the Future of Work, which is included in the podcast notes and in the white paper section.

In today’s podcast, we’ll take a look at how outsourcing is bound to change the future of work and how we live, as well as how AI and automation fit in the greater picture.

First foray into online outsourcing

Derek opens the interview by asking what led to Korok’s academic and personal interest in outsourcing. Korok responds by looking back on his work as a part of the Council of Economic Advisers. In the midst of an amazing experience, he realized that much of the work of the President of the United States is delegated to a 5,000-person staff around the White House. “I noticed that this is an extremely efficient way of accomplishing tasks because it shifted the burden to other people who could then identify who the best person in the staff was to do the job,” Korok says. “And often, that person is better [at that particular job] than the president himself.”

After his work in the Council of Economic Advisers, Korok returned to teaching. He thought of how the president was getting work done at the White House and used that as an inspiration to think of how he, as an individual, can work with his own staff and, in turn, make the most use of his time and boost his productivity. ODesk, one of the early online platforms for outsourcing work, was instrumental in this plan. He used the website to hire online workers and delegated various research-related tasks to them.

“There’s a lot of work that goes into the publication of academic papers and the reality is that I didn’t need my Ph.D. to do every single part of that job. In fact, a lot of it would be better served by people who could specialize in certain areas,” he shares. “This is largely based on the theory of comparative advantage, which we teach in economics. And really, people—not just people, but actually countries also—should specialize and invest in the highest use of their time and resources.”

This process is still in its infancy, though, and Korok noticed that there’s still a lot of friction when it comes to working with online workers through the platform. After years of using the same process, he hired students in his research program to oversee these online workers. Eventually, their team built an auction website that serves a dual purpose: a way to efficiently distribute tasks to online workers, and a testing ground where they conduct research using the mechanics of the auction.

After years of using and benefiting from outsourcing, Korok made digital-based outsourcing one of his primary areas of research interest. Now, he organizes his research center and focuses his studies on the mass of economic benefits that outsourcing can bring. “[Online outsourcing] is the undiscovered country of the future. It is the major transformation that people don’t yet know about,” he says.

The evolution of outsourcing

Outsourcing is bound to change the way that people live and work, particularly now that the internet is reaching the other half of the world. “There are going to be billions of people coming online for the first time in the next decade or two. And a lot of these people, they’re not coming online as consumers,” Korok notes. Instead, they will be joining the online community as sellers of product and labor. “The real benefit of this is that effective outsourcing will unlock huge amount of productivity by matching together workers on the one side and employers on the other, in ways that I think the world has never yet seen,” he adds.

Derek relates that the concept of outsourcing may be met with friction, but it’s really as old as society itself. In early communities, for example, people can be tasked with hunting, tending the fire, making tools, and doing other specialized activities that are necessary for their collective survival and comfort. This system allows people to become better at what they do. Today, it’s common for businesses to outsource functions like accounting. However, the friction is still there, particularly when the method involves the use of the internet. Many people are especially concerned that online outsourcing may have negative economic and nationalistic implications. With this in mind, how will outsourcing continue to evolve in the future?

Korok agrees to this and notes that the wide availability of the internet has made outsourcing more available, transparent, and faster than ever. This expedited outsourcing process has stripped away the need for intermediaries, which used to be an essential part of the old way of outsourcing. Now, there’s no need to go through a middleman just to buy or sell services from different parts of the world. Consumers and producers themselves can reach each other directly online.

In the face of how outsourcing is being received in the US and other countries, Korok suggests that outsourcing can be viewed as free trade where people trade their skills and services for income. For free trade to thrive, putting up barriers—something that nationalism encourages­—should be avoided. Despite this view of outsourcing, there’s light at the end of the tunnel. “I’m actually optimistic that the profit motive will drive enough businesses and employers to continually search for value. And that will push for outsourcing even if it is politically unpopular at times.”

Derek agrees, citing profit-driven development as a common drive for societies and businesses to seek a more efficient way of doing things. Then he brings up the issue of automation and the extensive use of artificial intelligence. In the development of more efficient markets, the lessening of mediation, and the proliferation of 1-to-1 trade, there will eventually be an equilibrium shift as wealth and populations are more evenly spread. Where will outsourcing go, then?

These questions are quite interesting to the academic in Korok. There are always winners and losers in trade, but the net gain is always positive. Outsourcing is the same way, and people who trade services and wages on the internet should be aware that they can end up on either side, but there’s always a net positive for everyone. “Overall productivity will grow and overall economic surplus will rise. But what will happen is the industries that are somewhat protected from that like, for example, transcription in the United States, will be exposed to global competition,” he says. They’ll be competing with people from other parts of the world who do essentially the same job for much less, and the outcome will not be in their favor. While this is an unfortunate reality for some, the continuous rise of global efficiency also offers new opportunities, and these people can reallocate their resources and find other types of jobs that are of higher value in the marketplace.

Working with a decentralized workforce

Derek goes back to how Korok was introduced to outsourcing and asks about how he arranged machinery around him in order to boost his day-to-day efficiency. Korok shares that putting up a system and getting used to working with a staff is a big investment, one that took up a lot of time and retraining. This is because technology today, such as self-service booking platforms, are built around individuals who do things by themselves. While this design increased over-all time savings, it also added more burden to the individual.

“What I had to do was to build a system such that I was primarily giving instructions to other people and then letting them handle all the details based on their special skillset­­—and that’s not something that technology enables us to do.” This system requires someone to have an executive mindset, deploying instructions to people who will, in turn, fill out the details of the task. The team had to put up with a high error rate at the beginning, but as they got used to working together and as Korok refined his process, this error rate became much lower.

The same situation is seen in businesses. Derek notes that entrepreneurs, in particular, tend to overlook the fact that it’s essential to rethink and retrain internally when bringing in an outsourced team, and that task delegation is a skill that’s put to use all the time when outsourcing work.

Korok agrees, saying “The delegation is a mental mindset that needs to happen. It is non-trivial.” There’s a high price to pay for having that 100% control over your processes, like not being able to leverage time effectively.

Efficient interfaces for outsourcing work

When discussing platforms that connect consumers and providers, Derek mentions that some of the users of these platforms are voicing out issues about the quality of work and the experience itself. This discontent highlights the need for higher platforms that offer management level work, which can save the consumer’s time and effort.

“I strongly believe that the trend is going to be towards more outsourcing in the future rather than less. So they will have this short fluctuation but I think that this is the tip of an enormous iceberg. That iceberg is the number of people who will be coming online in the next decade or two and the huge amounts of productivity that that will provide. It’s just too much to leave sitting on the table,” Korok replies.

Eventually, this will give rise to technologies and companies that focus on harnessing that human capital and address these current hiccups in order to take advantage of that human potential. This will then lead to better platforms and methods of assigning and distributing work—a topic that Korok discusses in his paper, Online Outsourcing and the Future of Work.

The article, which is of a somewhat speculative nature, proposes that the whole fundamental of employment will change: fulltime jobs will be a thing of the past, project-based work will become the norm, and output-based work will be preferred over input-based. Korok thinks that it will take a long time for these to happen—50 or even 100 years in the future—but there are signs that some of these changes are already taking place. The growth of the sharing economy, as reflected by the number of people that choose to become Uber drivers, is one example. There’s also the increase of contractual work. Eventually, this will lead to the development of hardware that’s designed to capture granular data on human performance, as well as programs and algorithms that delegate work more efficiently.

This view of the future is something that Derek shares. In a few years, he thinks outsourced work will become one and the same with regular work or employment.

“The nature of employment will become much more flexible and open-ended,” Korok adds.

The role technology plays

Artificial intelligence is a topic that has been making waves in the outsourcing industry in the past few years, and the wide adoption of AI technology has been largely met with concern. Some people fear that this will take away their jobs. Derek, however, believes otherwise and thinks that AI will be used mostly to enhance platforms and help reduce the friction that comes with outsourcing work to different places.

They both agree on this point. There’s the very real prospect that AI will overtake some of the more basic jobs, but the technology still has a lot of room to grow and will need a lot of time before it can sufficiently be used in situations that call for strong human judgment. “But I think one of the best applications of AI will be inside these new platforms of the future,” says Korok. One of the things he is excited about is when virtual reality takes off. This will allow people to seamlessly communicate with another person from a different country, and it’s bound to make the world a much smaller place.

Click here to listen to the second half of the podcast of the conversation between Derek Gallimore and Korok Ray.