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  In fact, a focus on building trust is having a well-deserved renaissance in contemporary business thinking. A comprehensive 2004 study by leading market research company Yankelovich, Inc. – they coined the term 'baby boomers' and have the longest continually running database on American consumer attitudes, lifestyles and buying behaviours – found that 'trust increases retention, boosts spending, enables premium pricing, and provides lasting competitive advantage.'2

  The fact is that globalisation has made knowledge and expertise almost as much pure commodities as any goods and services are. In a world as fast-changing as ours, no body of expertise, no matter how valuable it may seem, lasts five years, much less an entire career. And no proprietary system is immune to competitors who can cheaply acquire the information necessary to copycat you on quality and beat you on price. Any product or service your company offers, any knowledge and expertise you possess can be outsourced and commoditised.And it is not just about people. It is technology as well. Legal contracts that were the domain of lawyers billing hundreds of dollars an hour can be downloaded from the internet for $20 a piece.

  Trust cannot be commoditised, however, and neither can the ability to engage others to believe in your vision, or to inspire them to behave in a certain way. In other words, outsource the commoditised information and knowledgebased elements of your business, not the relationships parts. The most valuable thing you or your business owns is the relationship you have with your customers and clients.

  You can see the effects even in medical care. One of India's fastest growing industries is health care. Middle-class Americans are going to India for their heart operations.

  Australians, too, although many choose places like Malaysia. Let me share a personal example of how trust can ensure your product, service and knowledge remain the product, service and knowledge of choice in the eyes of the marketplace. I recently had laser eye surgery. Two friends had both had it done and raved about the great results. One had paid about $6000 for his surgery at a Sydney clinic. The other had his done in Kuala Lumpur at one-fifth of the price. Both were successful, each having 20/20 vision as a result.

  I decided to do a little more research. As it turns out, both places use exactly the same equipment to perform the operation. And having had it done, let me tell you this is significant.With the exception of administering some Valium (much needed by the way), putting in some eye drops and placing a clamp under my eyelid (I am getting freaked out just thinking about it), the doctor basically did nothing. Oh, sorry, he did input the appropriate data into his computer based on the pre-surgery tests that I had done, which were also conducted almost entirely by machine.

  Furthermore, both surgeons had trained in exactly the same place – here in Australia. I was headed to KL in a couple of weeks anyway, so in effect I did not need to cover the cost of my flight or accommodation. It was a simple choice. Did I want to pay $1200 or $6000?

  I paid the $6000, and would do it again in a heartbeat.Why? I met the Sydney area surgeon before deciding to have him do the operation. I even quizzed him on the Malaysia option.

  'Pete, I care,' he replied, 'because my livelihood depends on it. If something happens to you, in addition to my feeling awful about that, my business would suffer a blow that it would struggle to recover from. If something went wrong, A Current Affair and Today Tonight would be all over it like a rash. Do you think the surgeon in Malaysia has that much on the line when he operates on you? Who would you trust with your sight? Me, who lives and works in the same neighbourhood as you and your wife, or someone who lives many thousands of miles away?'

  Sold!Why? Because like everyone else in the world, I want to do business with people that I know, like and trust, and that I can rely on for help in the future.

  Recall my friend the perspex manufacturer, whose struggle with Chinese imports I discussed in 'Fast, Good, Cheap – Pick 3'. He eventually sidestepped those imports, and avoided having his business torpedoed by them, through capitalising on the relationship of trust and confidence that he had built up with his customers. This allowed him to transition his business to concentrate on doing the most profitable special orders and one-off displays rather than fight a losing battle to keep a sustainable share of bulk order displays. Special orders and one-off displays require a deep understanding of the client's business and customer base. You can't outsource that! This does not mean that 'Business is Personal' negates the need to be fast, good and cheap (at the cost). As a partner in an Australian law firm said to me recently, his clients were increasingly demanding that he meet the price of his competitors even though the clients had been doing business with the firm for ten years.

  At the end of the day it is people – customers and staff – who keep you in business. What applies to your relationship with customers applies equally to your relationship with staff. Both groups are looking for experiences that give their lives meaning and enhance their sense of purpose in the world. Both want to be treated with respect, and be stimulated to grow and learn. In short, people not only want to do business with, they also want to work for and with, people they know, like and trust.

  STAFF AND CUSTOMERS – CO-NUMBER ONES

  If there is a disconnect between how you treat staff and how you treat customers, it is going to hurt your business. I don't for a second mean that you can't expect and demand high performance from staff. In fact, treating staff with care and respect supports higher and higher staff performance, especially with regard to meeting customer needs and wants, a subject I'll return to at the end of the chapter.

  For now, let me give you an example of how this applies in the legal fraternity, which is definitely dealing with the four forces of change. The Australian market for legal services is a mature one, with most national firms looking to Southeast Asia for new market opportunities. Building market share domestically means stealing that share from the competition. This is as opposed to the organic growth that increased the size of the market for all until recent times. A rising tide lifts all boats. But when that tide turns, it's easy to get stuck in the mud.

  Australia's big national law firms are now in a nasty fight for market share and profitability. One strategy they are all employing is throwing tens of thousands of dollars at the graduate market to woo the best young lawyers, and then spending hundreds of thousands of dollars to develop them. The net result of that, however, has been a disappointing 50 per cent employee retention rate for many of these firms after three years.

  In this regard, Australian law firms are experiencing a common global dynamic. In every category of goods and services, there is global oversupply and global underdemand. At the same time the opposite is true in the skilled labour market. The world-class talent required to out-innovate and out-market the competition is scarce on the ground, and the most talented and best credentialed individuals are accordingly making demands of organisations that are rocking the foundations of the way business gets done. These circumstances put firms into a squeeze between downward pressure on fees and prices and upward pressure on wages and perks for highly skilled staff.

  Recently I conducted a consulting project on recruitment and retention for one of the largest law firms in Australia. This firm has enjoyed an extremely successful commercial practice in Australia, New Zealand and Southeast Asia over the last several years. But upon receiving a prestigious award for market-leading client service, the firm's former CEO said that 'the client comes first', that staff 'did not have a right to a personal life', and that they must all sacrifice whatever is important to them in order to meet the expectations of clients. The mainstream business media caught onto the story and wouldn't let it go.

  The former CEO was not trying to attack his staff. He was trying to say that customers, the law firm's clients, were number one. But his comments were not reported that way, nor were they viewed in that light by those the firm needs to recruit, the top Generation Y graduates who, like all of their peers, are renowned for placing work and personal life balan
ce at a premium in deciding which job to accept.

  The firm had to start sucking up, and hard. They had to reposition themselves proactively in the talent market, or watch their competitors get the cream of the crop of each year's law graduates. For a firm so used to getting the best of the best, nothing short of a mindset flip would be required to keep them at the cutting edge of their market.

  My advice to the firm was to go soft. That is, they needed to extend to their potential new recruits the same world-class service they gave their clients. Or put another way, to make the attraction and recruitment experience more 'personal'.

  Making staff co-number one with customers is a flip that many organisations resist. But if you don't have talented, creative, dedicated staff on board with your thinking and mission, you can't reach clients and customers effectively. A competitor who gives staff higher priority will get there before you.

  In conjunction with the partner responsible for staff issues, I presented these ideas to a group of key partners in the firm. As you can imagine, there was some protest from the hardened senior lawyers in the room, most of them ambitious baby boomers and Gen X'ers. All of them had played by the old rules and sacrificed everything outside the job to get where they were. They expected Generation Y to do the same. 'Young lawyers should be grateful to work in such a prestigious firm?' was the cry. But to their credit they were able to come to terms with the new dynamic in the labour market and flip!

  Through a series of educational sessions for the interviewing partners and changes to the way recruitment was handled, they made the process a much friendlier and more personal one. Although I am not at liberty to share exactly what we did, you can use your own team to come up with a strategy to personalise your recruitment process in a way that is aligned with your company's employer brand.

  In a year when, after all the bad press about the former chief executive officer's remarks, the firm would have been ecstatic to maintain their job offer acceptance rate, we increased it by 50 per cent. This is an example of a company recognising that business is personal for both customers and staff, and successfully managing a PR disaster at the same time as attracting more of the best and brightest job candidates. It also illustrates the overarching flip that in today's business world you must 'Think AND, Not OR'. Conventional business thinking holds that it is an 'either/or' world in which customers or staff can be number one, but not both. In fact, as my clients discovered to their benefit, making customers and staff conumber one creates a win-win situation. There's no better evidence of that than the fact that the firm won the same client service award the following year as well.

  Making sure that you do not treat staff in a way that is at odds with the way you treat customers is essential, even if you are a sole proprietor and you are the only staff your business has. The way you treat yourself will inevitably be reflected in the way you treat customers, for good or ill.

  With that in mind, let's take a close look at the decisions on outsourcing and off-shoring by my bank and numerous other companies.

  GETTING HIT IN THE HEAD WITH A BRIC, OR, GETTING OUTSOURCING RIGHT

  Over the next forty years, according to projections by Goldman Sachs, the BRIC economies (Brazil, Russia, India and China) will likely become larger as a group than those of the so-called G6 (the US, UK, Japan, Germany, France and Italy). Most of that growth will come in the next thirty years, over which time China will probably surpass the US as the world's largest economy. Of the current G6, only the US and Japan economies will remain among the six biggest.

  Many people find this prospect frightening. A study by one of Europe's leading business schools, IMD (the International Institute for Management Development in Lausanne, Switzerland), found that of 1962 US businesses surveyed, 49 per cent believe they have lost their competitive edge to China and a further 47 per cent believe they have lost their edge to India as well. These fears are fuelled by the undeniable growth of outsourcing from the developed to the developing world. China and India are now consolidating positions as the world's manufacturing and service-provider destinations, and former Soviet-bloc countries such as the Czech Republic are increasingly doing the back-office work for big companies in France and Germany. For example, GE do 48 per cent of their software development in India, where the engineers earn on average $12,000 a year compared to $72,000 in the US. It is estimated that salaries rose 17 per cent in India in such professions in 2006, which could quickly erode this price advantage.

  Much of the anxiety in developed economies about outsourcing to developing economies betrays a poor understanding of the value chain. It is one thing to make products or do the paperwork for the world cheaply, and it is another thing entirely to innovate, design and sell goods and services in the world's advanced consumer markets. Own the manufacturing of a product or the back-office part of a business, and you own the links in the supply chain that are farthest away from the consumer and most easily commoditised. They are the least valuable. Own the links that are closest to the customer, however, and you own the links that represent the highest value and profitability. Thus, as Goldman Sachs also projects, per capita incomes in the United States and other currently developed economies will remain higher than those in Brazil, Russia, India and China, even after these economies have grown bigger than the G6.

  Doomsayers on the threat of the BRIC economies to the developed world often cite such figures as the numbers of engineering graduates per year in different countries. In 2006, according to multiple media sources, China graduated 650,000 engineers and India graduated 500,000. By contrast, the US graduated 70,000, Australia 4600 and New Zealand 1500. Even given the vastly larger populations of China and India, this seems like a huge disparity.

  Even though I think we should be concerned about the emergence of technical skills in economies with clear labour cost advantages, it is important to note that these oft-cited statistics are now generally considered to be quite misleading. In December 2006 researchers at Duke University in the US reported that in the case of India only 112,000 engineers graduated with a bachelor's degree or higher, and that the higher figure publicised by India's National Association of Software and Service Companies (NASSCOM) was not only wrong but included those with less than degree-level qualifications. In the case of China the correct figure for graduating engineers was more like 350,000 than 650,000. Using the definitions that generate these numbers for India and China, the US actually graduates as many as 137,000 engineers per year. This places it at 470 engineers per million people, compared to 270 per million in China and just 100 per million in India.

  The Chinese and Indian numbers are still impressive, of course, and are growing every day. Consider that according to the UN, 8.5 million regional Chinese citizens move to urban areas every year. So, should freshly minted engineers in the US, Australia and New Zealand be freaking out? That depends. If you're a new engineer who is betting on applying the rote engineering knowledge you learned in engineering school for the indefinite future, yes, you should be worried. If you're betting instead on a lifetime of learning and unlearning, and of leveraging relationships with valued customers and clients, you should be confident of your ability to make your way.

  You might even find it very profitable to go to work in India for a time. India graduates 112,000 engineers a year, but the average quality of these engineers is so poor that Indian business and government officials fear it could be a limiting factor on India's economic growth. To find engineers who can think creatively, Indian firms are beginning to recruit aggressively in the US and other developed countries.

  It is the same if you are an accountant. The Big 4 accounting firms are beginning to adapt their existing 'get them in young, work them hard, pay them as little as possible and charge them out at as much as possible' to the developing world. In 2006 alone, more than 360,000 US tax returns were completed in India at a value of over US$40 million. That figure is projected to rise to anywhere between 1.6 million and 22 million by 2011. Instead o
f getting some young graduates in developed countries to crunch the numbers and do the basic work, they found they could get it done cheaper and to a better standard in India.

  Again, should you be worried if you are an accountant? Yes, if you believe your value is the left-brain numbercrunching skills that are rapidly being replaced not just by some graduate in India for one-fifth of the wage but by software that those same graduates are developing. No, if you realise your value is making your clients feel secure by minimising their exposure to risk and remembering the little things about their businesses. And definitely no, if you realise the value of aligning yourself strategically with those clients, building deep relationships that enable you to help them grow and develop their businesses. Skills are becoming commoditised. Relationships are not!

  The trend to outsourcing the production of goods and services will continue, as well it should. There are huge cost savings to be had, and companies that do not achieve these savings will be at a disadvantage to companies that do. Successful projects orchestrated by firms such as Accenture are evidence of how powerful such outsourcing activities can be for businesses.

  The biggest, most profitable companies in the world are among the most aggressive outsourcers. In the early 1990s, Jack Welch, then CEO of GE, mandated a 70/70/70 rule: 70 per cent of business processes to be outsourced, with 70 per cent going offshore and 70 per cent of that (around 30 per cent of the total) going to India. That policy has been continued by current GE CEO Jeffrey Immelt, and GE has around 13,000 employees in Delhi alone. It's no wonder that according to CIO magazine, 73 per cent of Fortune 500 companies see outsourcing and off-shoring as an im-portant part of their strategy, and that Gartner, the US-based information and technology research firm, estimates the global off-shoring market in 2007 as worth around $US50 billion.