Ill’s of outsourcing. Ah ! people are finally seeing it.
I never have been a fan of outsourcing, have argued against it with so many on this subject, almost everyone seem to think that it is good to outsource ( atleast mundane tasks like call processing etc) . My argument has been that outsourcing creates massive holes in an organization capacity for innovation thus depriving it out long term value creation but simultaneously benefiting in the short term by cost reductions. This I think happens because our traditional way of accouting/measuring a business’s value does not factor human capital.
I believe it is still a nascent topic researched by prominent academicians and some industry people. Milken has been doing some terrific work in the subject of human capital.
Note: I am arguing that outsourcing is bad for a firm, not for a developing country like ours 🙂 where it has helped put india into the global league in the IT industry.
mtrajan.com 
The article seems like mere propoganda material. The examples they cite are just side effects and dangers which have to be managed while outsourcing. And about your argument, most processes outsourced are typically non-core activities/overheads. Whether innovation in these areas matters to the company at all is really doubtful. When something has nothing to do with its core business, it makes no sense to focus/innovate in it. Infact, it makes more sense (and is more plausible) for such an innovation to occur in an outsourced organization which specializes in it. The essence of competitive strategy is deciding what NOT to do and I feel that outsourcing is simply a logical step in that.