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Most suppliers would probably prefer to attract and deliver mainly high-end, high-margin services, but many of them have to take on low-end, high-volume tasks. Such tasks include testing, transcribing audio files or hand-written documents, and even some low-end application development.
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Faced with such requests from large clients such as Microsoft, suppliers are unlikely to turn the business away. But at the same time, they are not keen on performing high-volume, low-margin outsourcing projects in-house. So what do they tend to do with such projects?
Some would perform such tasks in-house, doing their best to keep their big clients happy at the risk of not meeting margin targets. Others will outsource these tasks to smaller or specialised suppliers, incurring the additional governance costs of managing the subcontractor, again just to keep their client happy.
But Chinese suppliers have found another solution – the “managed crowd”. Many of us are familiar with the concept of crowdsourcing, in which a task is outsourced to an undefined crowd. Crowdsourcing platforms, such as Freelancer, facilitate a space where buyers and undefined suppliers can meet, offering an end-to-end lifecycle for small-scale outsourcing projects.
I visited Pactera, the largest Chinese supplier based in Beijing, to find out what a managed crowd is. Pactera’s managed crowd platform, called Pactwork, brings together the firm’s clients and suppliers.
The work performed through Pactwork is high-volume, often involving linguistic skills, such as transcribing audio files in dozens of languages. Instead of performing the work in-house or subcontracting to another supplier, Pactera manages a crowd of 30,000 suppliers that do the work for it. How does this work?
Suppose a work package of a one-hour audio file arrives from a client. Pactera will create a new job on its crowdsourcing platform and will invite suppliers to take part in processing the work. The invitation will be advertised on various social media sites, as well as universities, to ensure a good response from multiple sources. At this point, the management of the crowd starts.
People responding to the invitation will be invited to undergo online training to prepare them to perform the work at the highest quality possible. The online training will give the crowd the unique tags and symbols they need to use when transcribing the audio files and will challenge them, through a set of multiple-choice questions, to validate their knowledge.
On average, the training comprises six sections and each person in the crowd can easily spend a few hours training for the job. Once this has been completed, Pactera will invite the candidate to take a thorough exam.
Approved to perform
On average, 25% of those who express interest and undertake the training will fail. They are entitled to have one more try before being rejected from the crowdsourcing platform. Those who pass will be reviewed by Pactera, and only after it is happy with their abilities and score will they be approved to perform work through Pactwork.
The audio files are chopped into eight-minute blocks and each is allocated to a managed crowd supplier. Once the supplier has completed an assignment, another one is assigned. To ensure the highest quality before delivering the results to the client, Pactera performs quality assurance on the delivered work as well as an automated quality assurance process of some audio files that were included in the assignments.
Other suppliers in China have introduced similar crowdsourcing platforms with a similar business model. For example, iSoftstone runs a managed crowdsourcing platform where testing, software as a service (SaaS), enterprise resource planning (ERP) and software development services are provided. Tonelink, as it is known, is based in Beijing and currently has 1,000 employees and 3,000 suppliers registered. It recently reported that about £160m had been transacted through its managed crowdsourcing platform since its inception just 18 months ago.
Tonelink’s revenues from these transactions amount to about £20m. Its main driver to pursue this crowdsourcing model is based on its ability to control and deliver quality from subcontracted work and yet benefit from attractive margins while maintaining a slim governance structure.
Pactera cited similar reasons for its pursuit of this sourcing model, although its scope of work is limited and currently focuses on the transcription of audio files, with the intention to expand to other business processes.
Tonelink is replicating its business model outside Beijing and has opened six other centres in China that use the same crowdsourcing platform to attract local business.
Interestingly, a managed crowdsourcing model that is based on an e-platform is not common in the West. Perhaps this is a missed opportunity considering many large suppliers have developed advanced e-platforms, but have not yet realised their potential. The Chinese did it again.
Ilan Oshri is a professor at Loughborough University and director of the university’s Global Sourcing and Services Research Centre. ..............................................................................................................