Starting from the software architecture realm, the PCMag Encyclopedia defines a kernel as:

The nucleus of an operating system. […] The kernel orchestrates the entire operation of the computer by slicing time for each system function and each application as well as managing all the computer’s resources… (kernel, n.d.)

From a business perspective, the way a company is run could be regarded as its operating system: What procedures are followed and how are its processes executed since it opens until it closes? One could also consider the strategic and tactical levels as the kernel, since they “orchestrate the entire operation of the” company, by managing the human resources and the use of machines, in order to satisfy/complete clients’ orders and requests. This would be the equivalent of a monolithic kernel, which PCMag Encyclopedia defines as:

An operating system architecture for a particular platform that includes all OS functions such as the file system, virtual memory manager, application interprocess communication and drivers. (monolithic kernel, n.d.)

However, there’s also a reduced or simplified kind of kernel. It’s our gold nugget:

A microkernel (abbreviated 5K or uK) can be considered a compact kernel as it performs only the basic functions universal to all computers. Designed to be integrated into different operating systems […] A microkernel is a component-based structure which improves portability at the expense of performance. (webopedia, n.d.)

Therefore, the microkernel could be translated as a particular kind of strategic level, which would perform only the essential (high-level) functions universal to all companies. It might thus be applied to different industries.

Defining Extreme Outsourcing

In order to analyze the “component-based structure,” we’ll now delve into the outsourcing realm. Lexico defines outsourcing as the obtention of “(goods or a service) from an outside or foreign supplier, especially in place of an internal source” (outsource, n.d.). Exaggerating this definition as much as possible, one could define extreme outsourcing as the obtention of goods and services from suppliers, without using internal sources at all, while keeping a minimalistic corporate structure. If one were to consider the make-or-buy question, this would definitely be a buy case, without making absolutely anything in-house.

Although I didn’t come up with the extreme outsourcing idea (Taulli, 2005), many will probably find this connection between the two realms useful. In fact, based on my knowledge of and experience, I can assure you that many concepts, procedures, and even optimizations that have been traditionally applied to each realm on its own are compatible with both of them.

The Component-Based Enterprise

To visualize this extrapolation from the software architecture realm to the corporate realm, we must look at the “component-based structure.”

In a traditional “monolithic” company, departments (HR, IT, Logistics) are fixed internal structures—much like the file systems and drivers hard-coded into a monolithic operating system. In the Microkernel Business Model, the company retains only the strategic core—the history, vision, and decision-making power—and treats all other functions as interchangeable components.

This allows the strategic level to activate or deactivate components at will. Just as a microkernel improves portability, this business structure improves agility. If a specific marketing agency (component) is underperforming, it’s “deactivated” and replaced without the trauma of internal restructuring.

The Translation Matrix

To fully appreciate the extreme outsourcing model, we must move beyond the metaphor and look at the functional equivalents. By mapping the software components defined by the PCMag Encyclopedia to specific business departments, we create a clear blueprint for this minimalistic structure .

The following table illustrates how the software functions translate directly into business functions:

Visualizing the Architecture

To summarize, this extrapolation from the software architecture realm to the corporate realm can be visualized by mapping the components directly.

In the diagram below, observe how the structure of a microkernel operating system—where functions are pushed out to external drivers—mirrors the extreme outsourcing business model, where departments are pushed out to external vendors.

The Core (The Kernel): On the left, the microkernel performs only basic functions universal to all computers. On the right, the strategic kernel performs only the essential high-level functions universal to all companies, such as strategic planning and brand management.

The Modules (The Components): Just as a microkernel uses a component-based structure to offload file systems and drivers, the business offloads Logistics (3PL), HR (HRO), and Manufacturing to specialized partners.

The Glue (The Connection): In software, the kernel uses Inter-Process Communication (IPC) to talk to components. In business, the strategic kernel uses SLAs (Service Level Agreements) and contracts to orchestrate the operation. This architecture allows the strategic level to activate or deactivate components with minimal disruption, replacing a vendor (component) rather than restructuring an entire internal department.

Scalability: The AWS Analogy

This model is conceptually similar to the revolution seen in cloud computing, specifically with services like AWS (Amazon Web Services). In the past, companies bought physical servers (fixed assets/monolithic). Today, they use AWS to scale computing power up or down instantly based on traffic.

Extreme outsourcing applies this logic to the corporate structure. The company becomes a scalable platform where resources (outsourced teams) are provisioned only when needed, shifting the business from a CAPEX (capital expense) heavy model to an OPEX (operating expense) flexible model.

The Ecosystem of Modules

For the kernel to function, it needs a robust ecosystem of service providers. The internal team focuses strictly on planning, monitoring, and controlling these external vendors.  The operational modules include:

• Supply Chain: Procurement and SRM (Supplier Relationship Management) handled by specialists.
• Production: The use of additive manufacturing (3D printing) or contract manufacturing to produce goods without owning factories.
• Operations and administration:
  • BPO (Business Process Outsourcing) and BPaaS (Business Process as a Service) for back-office tasks.
  • HRO (Human Resources Outsourcing) for recruitment and payroll.
  • ITO (Information Technology Outsourcing) for infrastructure.
  • RDO (Research and Development Outsourcing) for innovation.
• Logistics: Utilization of 3PL (Third-Party Logistics) or 4PL providers who manage the entire supply chain without the company owning a single truck or warehouse.
• Growth: External partners handling Marketing, Sales, and CRM (Customer Relationship Management).

Risks, Advantages, and Compatible Industries

This model is not without its trade-offs. As noted in the definition of the microkernel, this structure “improves portability at the expense of performance.”

This structure works best in industries where the value lies in the brand and intellectual property, not the physical execution. A classic example is Coca-Cola. While they are a massive entity, their core kernel is the secret formula and the marketing strategy. The physical production (bottling) and distribution are largely handled by a vast network of independent bottling partners—a real-world execution of the microkernel concept.

Conclusion: The Future is Modular

Ultimately, extreme outsourcing is not just about cutting costs; it is about architectural agility. In an era where market conditions shift overnight, the companies that survive will not be the ones with the largest internal resources, but the ones with the most efficient kernels. By adopting a microkernel mindset, businesses can ensure that while their components may change, their core strategy remains robust, scalable, and secure.

References

• Dini, V. (2025). Microkernel-Based Web Architecture: Design & Implementation Considerations.
• Lexico. (n.d.). outsource. Retrieved April 01, 2020, from Lexico: https://www.lexico.com/en/definition/outsource
• PCMag. (n.d.). kernel. Retrieved April 01, 2020, from PCMag Encyclopedia: https://www.pcmag.com/encyclopedia/term/kernel
• PCMag. (n.d.). monolithic kernel. Retrieved April 01, 2020, from PCMag Encyclopedia: https://www.pcmag.com/encyclopedia/term/monolithic-kernel
• Taulli, T. (2005, October 5). Extreme Outsourcing. Retrieved 04 04, 2020, from Forbes: https://www.forbes.com/2005/10/05/entrepreneurs-tomtaulli-ecommerce-cx_tt_1005straightup.html
• webopedia. (n.d.). microkernel. Retrieved April 01, 2020, from webopedia: https://www.webopedia.com/TERM/M/microkernel.html

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Drawing from a decade of field experience, extensive literature review, and in-depth interviews, Outsourcing – Avoiding Unnecessary Adversities delivers a practical, research-backed toolkit that leaders can use to steer outsourcing efforts to sustainable success. The aim of this article is to take you inside the book’s most compelling findings, explore its unique methodology, and share actionable insights that will resonate with everyone managing modern partnerships.

The Outsourcing Mirage: Common Pitfalls Explored

For all its potential, outsourcing is often misunderstood. Organizations rush to outsource peripheral or even core business functions, lured by promises of efficiency, cost-cutting, and focus on “core” activities. Unfortunately, in practice, this journey is riddled with pitfalls—some headline-grabbing, others quietly corrosive.

One notable example involves a large public health department in Australia, which hired a global technology firm to revamp its payroll system. What started as a project with a manageable budget quickly exploded to over a billion dollars! The root causes? A lack of due diligence in vetting providers, unclear requirements, and a dangerously passive approach to communicating needs. At the project’s rock bottom, thousands went unpaid while others were erroneously overcompensated. Legal disputes and public scandals naturally followed.​

Another case tells the story of a family business in the software sector. Following the death of its founder, the company opted for a hasty outsourcing move to replace lost expertise. Trouble arose when the chosen vendor lacked actual experience in antivirus products, leading to poor deliverables. The contract, signed in haste, was missing penalties for subpar quality—an omission that became fatal when the product lost market credibility. Efforts to backsource—bring the work back in-house—proved futile, and the company ultimately collapsed.​

Across eight in-depth cases from around the globe—spanning industries from IT to industrial maintenance—recurring adversities became clear:

• Poor vetting of vendors and improper preparation of requirements
• Outdated or missing penalty clauses in contracts (“malus provisions”)
• Rushed outsourcing of core (rather than truly non-core) business activities
• Demotivated provider employees and deteriorating service quality
• Cultural misalignment and failed integration between client and vendor teams
• Short-sighted cost-saving moves resulting in long-term financial and regulatory headaches

Under the Surface: The Real Cost of Governance Failures

The most insidious risk in outsourcing is not technical—it’s organizational. Research and interviews with industry executives repeatedly show that companies underestimate the governance burden triggered by outsourcing. Instead of simplifying their workload, leaders and managers often find themselves overwhelmed by meetings, vendor chases, and ambiguity in responsibility.

Many organizations simply add the task of managing outsourcing onto the plates of already busy staff. Rather than assign dedicated roles or units, they expect multitasking—leading to missed deadlines, widespread confusion, and, ultimately, project drift. The book’s field interviews suggest organizations should consider dedicating individuals to spend 80–100% of their time solely on overseeing outsourcing.​

The interviewees echoed a familiar refrain: meetings scheduled at the last minute, unprepared stakeholders, endless digressions, and a pervasive lack of focus. Rather than facilitate decision-making, these gatherings became cost sinks—sometimes even failing to clarify basic professional roles or contractual duties. Quality suffers as a result.​

Beyond poor preparation, several cases revealed troubling vendor practices. These ranged from staffers with embellished résumés presented during bidding, to “no-show” consultants billed to the client despite never lifting a finger, to plain fake CVs. In some instances, providers would even restrict vendor personnel from honest work reporting. This not only defrauds, but further erodes trust, stalling project momentum.​

Cultural Clashes and Human Realities

Although outsourcing is so often framed as a process, it’s, at heart, about people. The qualitative interviews and field case studies in the book make this plain—demonstrating how easily a poorly integrated vendor relationship can generate issues of motivation, misaligned incentives, and cultural friction.

Provider employees, especially those deployed “on-site” with clients, are often left without clear paths for professional growth or integration. Some interviewees described being overqualified for tasks, excluded from regular workplace privileges (such as canteen access), or feeling like perpetual outsiders. These dynamics undermine motivation and increase turnover, further reducing service quality.​

Time and time again, case studies highlighted the lack of true integration between client and provider employees. Far from being a “team,” each group operated in silos, meeting only as necessary and steering clear of broader forms of workplace camaraderie. This not only worsens morale but leads to easily avoidable miscommunications, inefficiency, and project failures.

ISO 37500: The International Blueprint for Responsible Outsourcing

The backbone of the book’s practical toolkit is the international standard ISO 37500. Unlike many consulting trends, ISO 37500 provides a lifecycle model applicable to organizations in any sector and any market. This model is built around four key phases:

1. Outsourcing strategy analysis: Evaluate opportunities and risks, define the business case, and set both enter and exit strategies before any contract is signed.
2. Initiation and selection: Prepare detailed requirements and run a competitive, thorough provider selection process.
3. Transition: Manage the transfer of staff, assets, and processes, ensuring seamless continuity and robust change management.
4. Delivery of value: Structure ongoing monitoring, quality management, and continuous improvement into the relationship.​

The critical insight: outsourcing requires more, not less, governance. The book offers a host of templates and practical tips—such as how to define contractually robust bonus/malus systems, how to use modeling tools (UML, BPMN, flowcharts) for process clarity, and how to enforce continual benchmarking against market costs.

The Toolkit: Frameworks, Models, and Real-World Templates

Beyond its deep analysis of where failures occur, the book’s lasting value is its toolkit—a suite of frameworks, diagrams, checklists, and contract clauses ready to be tailored for your organization.

• Modeling tools: Step-by-step guides on using UML use-case diagrams, flowcharts, and BPMN not only for software, but also to clarify roles, handovers, and business processes in any industry. This helps demystify tasks, clarify expectations, and reduce “handoff” risk.​
• Access control and employee management: Insights into workplace logistics—managing onsite vendor staff, monitoring access securely, and resolving thorny issues such as timesheet abuse or “ghost” consultants.
• Effective meetings: A system for efficient meeting planning: setting structured agendas, limiting participants to those truly essential, and mandating clear pre-meeting documentation. This saves both time and money.​
• Project and quality discipline: Application guides for PMBoK (for projects), ITIL (for IT services), and Six Sigma (for quality and process improvement) to outsourcer-provider partnerships. Improved documentation and process rigor are proven to boost project outcomes.​
• Bonus-malus clauses: Practical templates for contract clauses that reward outstanding vendor performance but—crucially—also impose penalties for missed deliverables or weak service quality. The importance of this step is heavily reinforced through both field studies and legal best practices.​
• Backsourcing preparedness: Perhaps most distinctively, the toolkit does not treat backsourcing—the return to internal provision—as an afterthought. Instead, it provides guidance on baking exit clauses and reversibility planning into every contract and even advises on the critical step of retaining key internal staff, so that rapid recovery is always possible.​

Field Research: Voices from Both Sides

A major strength of the book—unlike generic consulting guides—is its reliance on extensive, qualitative interviews with practitioners on both sides of the client-provider divide. The narrative does not shy away from the “messy” realities: stories of clients left ill-prepared, of providers forced to pad résumés to win deals, of employees caught in the crossfire.

The 32 interviewees who contributed to this body of research ranged from project managers and consultants to executives and frontline staff, hailing from the Americas, Europe, and Asia. Their frank, often critical appraisals, are distilled not only into lessons learned but into repeatable methodologies for readers to adapt. These include:

• How to design training and onboarding for both internal and external teams
• Techniques for periodic, low-bureaucracy check-in meetings
• Realistic advice for project handover and transitions in turbulent environments
• Mechanisms for detecting “no-show” employees and preventing cost leakage​

Not Just for Executives: A Resource for Every Level

While the book addresses boardroom decision-makers, it is equally beneficial for project managers, team leads, consultants, and even advanced students or researchers focused on corporate governance, sourcing, or business process design. Each section invites adaptation—allowing organizations to bring scientific rigor and proven process frameworks to one of their most critical strategic decisions.​

Case Study Close-Up: Backsourcing as a Life Raft

One frequent theme throughout the stories is that of “backsourcing”—the strategic re-internalization of outsourced processes. While rarely discussed in industry literature, the book emphasizes that backsourcing should be planned from day one. There are instructive tales where organizations, having suffered disastrous consequences from poor outsourcing, were able to swiftly recover only because they retained a core of knowledgeable internal staff and insisted on strong exit clauses in contracts.​

Why Now? The Pressing Need for Responsible Outsourcing

As the pace of technological change accelerates and global competition intensifies, outsourcing is no longer simply an optional tactic—it is a necessity for survival and growth. However, as the evidence shows, uncritical adoption can backfire spectacularly, with not only financial but also reputational and operational consequences.

The enduring lesson: outsourcing, when done well, is a driver of innovation, agility, and competitive strength. But this can only be achieved by facing its risks head-on, investing in governance capacity, and demanding transparency and accountability from partners.​

Conclusion: Avoiding Adversity Starts with Knowledge

Every organization embarking on the outsourcing journey must remember: the true cost of failure is seldom just monetary. Failed relationships can damage employee morale, destroy market trust, and lead to regulatory and legal peril.

Outsourcing – Avoiding Unnecessary Adversities stands out as a definitive guide—meticulously researched, field-tested, and enriched with practical frameworks—to help organizations turn outsourcing from a gamble into a powerful asset.

You can discover the full toolkit, detailed case studies, and proven methodologies in Outsourcing – Avoiding Unnecessary Adversities, an essential companion for anyone determined to make outsourcing work smarter and more sustainably. Empower your teams, avoid unnecessary adversity, and turn every outsourcing venture into a story of sustainable success.​

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My research on outsourcing revealed that unfortunately there are specialized (or not) labor service providers that engage in unethical billing practices by charging their clients for ghost workers. These are workers who, in reality, do not contribute any labor or value to the project at hand. This behavior not only inflates the operational costs for companies relying on these outsourced services, but also introduces significant inaccuracies in workforce reporting and project management. The implications of such practices are far-reaching, affecting not just the financial bottom line of businesses, but also potentially compromising the quality of work produced and the integrity of the labor market as a whole. This issue underscores the critical need for thorough due diligence, transparency, and ethical conduct in the outsourcing industry.

More specifically, buyers could receive invoices for services offered by:

• Employees that aren’t even aware of the service being charged;
• Former employees, whose data is still kept in the system for the provider’s convenience;
• People who have never worked for the company;
• Dead people (employees or not);

among other ghost worker cases.

To avoid being victims of identity thieves, buyers could recur to making video calls. Not only to introduce themselves, but also for subsequent meetings meant to verify that the workers are still involved in the service.

Research available at: https://www.amazon.com/dp/B07VR7WYL6/

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Parniangtong (2016) defined strategic sourcing as “the process of developing channels of supply at the lowest total cost, not just the lowest purchase price” and suggested to:

1. Focus on the total delivered value, not the purchase price;
2. Choose a collaborative approach to dealing with suppliers, rather than oversight; and
3. Focus on enhancing profitability, rather than cost savings.

Therefore, in the strategic sourcing mind frame, purchasing decisions are no longer siloed nor limited to the purchasing department, but require additional collaboration from other departments and monitoring throughout the supply chain. In particular, one of the most significant related values that comes to mind is the Cost of Quality (CoQ), which traditional purchasing strategies didn’t necessarily consider, as they mainly focused on picking the supplier who offered the lowest price.

Mathematically speaking, the CoQ is calculated as follows:

CoQ = CoGQ + CoPQ

Where CoGQ stands for Cost of Good Quality and CoPQ for Cost of Poor Quality.

The Cost of Good Quality (CoGQ) may be interpreted as the amount of money invested/spent by the company in making sure defects are prevented or detected as early as possible throughout the supply chain. For illustrative purposes, we could consider these green light defects.

According to Quality-One International (n.d.), some examples of prevention costs may be:

• Establishing Product Specifications,
• Quality Planning,
• New Product Development and Testing,
• Development of a Quality Management System (QMS), and
• Proper Employee Training.

Meanwhile, appraisal costs are those that arise from inspections, tests, and audits, and are meant to maintain acceptable product quality levels. According to Quality-One International (n.d.), some examples are:

• Incoming Material Inspections,
• Process Controls,
• Check Fixtures,
• Quality Audits, and
• Supplier Assessments (Quality-One International, n.d.).

On the other end, the Cost of Poor Quality (CoPQ) may be regarded as the money spent by companies to fix defects, that were hopefully detected internally or maybe tragically by the customer. Therefore, we could consider these yellow and red light defects, respectively.

Some internally detected defects (yellow light) might be:

• Excessive Scrap,
• Product Re-work,
• Waste due to poorly designed processes,
• Machine breakdown due to improper maintenance, and
• Costs associated with failure analysis (Quality-One International, n.d.).

Likewise, some defects detected externally (i.e. by the customer; red light) might include:

• Service and Repair Costs,
• Warranty Claims,
• Customer Complaints,
• Product or Material Returns,
• Incorrect Sales Orders,
• Incomplete BOMs, and
• Shipping Damage due to Inadequate Packaging (Quality-One International, n.d.).

It’s extremely important to be aware that the closer the defect is to the customer, the more expensive it will be for the company to fix it. Bear in mind that in the case of products, reverse logistics costs are pretty significant (McKevitt, 2016).

A relatively recent example is Chipotle Mexican Grill’s foodborne illness outbreak in which a bacterium that forms when food is left out at unsafe temperatures struck nearly 700 people with gastrointestinal problems (LaVito & Rogers, 2018). In this case and in addition to the lawsuits, even the brand’s reputation suffered, evidently.

Another, yet older, case is that of Mattel. In 2007, the toy behemoth recalled 18 million toys because they had toxic lead paint. This case is highly relevant as this whole situation could’ve been avoided if Mattel had established and applied the appropriate quality controls throughout its supply chain, and in particular when receiving the products from Chinese contract manufacturers, since the toys had been painted by them.

In both cases, the companies were able to recover, more or less, but at a great expense.

Another aspect to consider when sourcing strategically is the overhead that will result from choosing a supplier over another. Will the client have to perform more quality control processes? Will it be necessary to hire professionals who speak other languages in order to communicate with the supplier? How compatible are the ICT systems? Etc.

In a commoditized market, a highly relevant question is: Where does the price difference come from? Based on my experience and that of several anonymous interviewees, it’s usually related to quality. More or less controls? Better or worse raw materials? More or less advanced technologies? Quicker or slower response times? Local or sub-outsourced offshore personnel? Etc.

It’s extremely important to have an understanding of where such a price reduction comes from, in order to evaluate the risks and estimate the respective impact it could have on the client’s supply chain and competitive advantage.

For example, in street and roadway construction projects one may sometimes see workers without the appropriate protection gear (eyes, ears, hands, …). There’s the rebate. What if an inspector shows up or a worker gets hurt and files a lawsuit?

In the airline industry, most low-cost companies removed the services included with the minimum purchasable product (i.e. ticket) and offer them as supplements. They therefore unbundled the traditional offering, with several adaptations for low-cost travelers, resulting in a reduced customer experience. However, these planes won’t fall because tickets “cost” less: the quality controls for the vehicles are hopefully still in place.

Experience has taught me that usually the sigma level is proportional to the price paid for a product or service. The sigma level indicates the throughput yield (error-free rate) and conversely the Defects Per Million Opportunities (DPMO). Therefore and in other words, the lower the price, the lower the quality. So, before signing a service or production contract, the purchasing cross-functional team should evaluate how to compensate for the remaining sigmas or quality gap, if deemed necessary.

A meaningful bonus will usually motivate suppliers to go the extra mile. This is self-evident and some well-known examples are waiter tips and CEO compensation plans.

An interesting question that buyers might ask vendors during the selection process could be: What impact have Six Sigma and Lean had over your organization? The answers will generally reveal a lot about a company.

When evaluating providers and having reached a reduced list of candidates, buyers might also want to have a look at their public corporate documents, such as financial reports, presentations, and annual shareholder meeting transcripts. For example, these will usually indicate how much money companies invest in R&D, training, etc. which will certainly come in handy when analyzing how innovative a supplier might be and how the competitive advantage gained by its new technologies might flow down the supply chain. This information could also help determine the most convenient contract duration and stipulate clauses to make the most of it.

Although it may seem reasonable to push the CoQ down the supply chain to the final consumer, if competitors offer products or services with similar features and quality levels, but at a lower price, final consumers will probably go for them. Such a result will have a negative impact on the company’s profit and the market price per share will quite surely decrease. Shareholders won’t be very happy.

In conclusion, it’s important to be aware of the impact that strategic sourcing and the Cost of Quality could have on a company and throughout its supply chain.

Remember:

• Usually the first thing sacrificed is quality: less features, less quality controls, or worse costumer experience.
• Ask yourself how will choosing a supplier over another impact your company’s competitive advantage?
• Don’t be surprised if you get what you pay for!

For more information on this subject, don’t hesitate to check out my book Outsourcing: Avoiding Unnecessary Adversities, now available on Amazon!

References

LaVito, A., & Rogers, K. (2018, August 16). Chipotle confirms cause of foodborne illness at Ohio restaurant. Retrieved from CNBC: https://www.cnbc.com/2018/08/16/chipotle-confirms-cause-of-foodborne-illness-at-ohio-restaurant.html

McKevitt, J. (2016, December 20). Reverse logistics dilemmas cost companies up to $260B. Retrieved from Supply Chain Dive: https://www.supplychaindive.com/news/reverse-logistics-returns-supply-management/432665/

Parniangtong, S. (2016). Strategic Sourcing: Concepts, Principles and Methodology. Springer.

Quality-One International. (n.d.). Cost of Quality (COQ). Retrieved 03 28, 2020, from Quality-One International: https://quality-one.com/coq/

Reece, J., & Norman, L. (2006, December 1). The Six Hidden Costs of Reverse Logistics. Retrieved from https://www.inboundlogistics.com/cms/article/the-six-hidden-costs-of-reverse-logistics/

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