In a much earlier post, I mentioned I’d had the unique opportunity to work on outsourcing projects both from the buy side, and from the sell side. Today I want to talk a bit about that, and explain why I feel outsourcing is just an awful idea, and hurts more than it helps.Once upon a time, the idea behind outsourcing was, if your company was doing work outside of its core competency, it made sense to farm that work out to a company who did it better. That way, the company you gave the work to would not only have better skills than you, but could also deal with the capital costs associated with that work (specialized staff, equipment, training) and the risks associated with shortfalls in work (unused overhead). Mostly, this type of outsourcing was for work you weren’t already doing, or were only dabbling in.
With increasing technology pressures, however, more companies are choosing to enter massive outsourcing deals where a few new things happen:
- the client company “sells” some of their existing staff to their vendor–one morning these people wake up and find themselves working for a different company (with no loyalty to them)
- the vendor offers cheaper staff from a country “offshore” (India, the Philippines, the Ukraine and Brazil are all popular choices, among others) where labour laws are less restrictive and tax incentives are plentiful
- the client organization pays a monthly fee for their vendor to “just handle it” and take the work off their hands
With this style of outsourcing, the original notion that an organization should farm out work it’s poor at is gone. If a company deliberately sells away or culls all the history, learning, customer relationships and expertise held by the staff of outsourced departments, they are not motivated by a desire to do better work. That just doesn’t make sense.
No, often these deals are financially motivated, with the desired end being a substantial reduction of overhead, and significantly higher profit margins. Most company executives aren’t naive. They understand what they’re giving up by eliminating large portions of human capital. So these deals need to carry a substantial cost benefit. And so they appear to…initially.
What they find, however, are numerous issues they hadn’t counted on, that ultimately hurt not just their bottom line, but the very fabric of their organization. In this article, I’m going to outline some of the observations I’ve had of outsourcing deals from working on both sides, and explain why I believe the title of this article.
As you’re reading this, remember the following: The client (allegedly) wants happy customers; the vendor (definitely) wants their invoice paid every month. These two objectives are unrelated.
Observations on Behavioural Impacts
The most significant impacts I saw were changes to individual behaviour. The first time I was involved with an outsourcing engagement, I was shocked. Gone was any sense of camaraderie…people turned into monsters almost overnight. This change in behaviour was not a flash in the pan, either…people were seriously hurt, and became tremendously untrusting of their executive management. As I’ve written before, when trust is broken, there are long term effects. Despite my efforts towing the line, “it’s a brand new day” and genuinely trying to make the deals work, getting cooperation was an uphill struggle. Here are some of the behaviours I saw on both sides:
|From the Buy Side||From the Sell Side|
Observations on Efficiency Impacts
Individual behaviour wasn’t the only place I saw problems. In every case, the efficiency of the client organization was substantially impaired. Here are some of the impacts to efficiency I saw first hand. Each of these items carried with it a tangible cost to the client over and above their payments to the outsourced vendor.
|From the Buy Side||From the Sell Side|
I realize my exposure is to a finite number of deals (although I don’t believe for a moment what I’ve seen is unique or rare). However, with the ever-increasing amount of evidence that suggests these kinds of deals aren’t what they appear to be on the surface, you’d think we’d start to see a downward trend in the sheer number of these deals being put together each year. Such does not appear to be the case as this graph from Dun and Bradstreet India demonstrates. (ITeS/BPO stands for “IT Enabled Services / Business Process Outsourcing”.)
There always seems to be excuses as to why these deals run into trouble. Often individuals are blamed…the salesperson, the executive signatories, the line workers. The desire to make these deals work is extraordinarily high. In light of high pressure sales pitches, literature extolling the virtues of outsourcing (for everybody else but you, apparently) and the exchange of massive amounts of money, failure requires a scapegoat. So here’s my question: When outsourcing deals consistently seem to create problems, do we keep saying “so-and-so just didn’t do it right” or might it make sense for someone to put their hand up and say, “HEY, YOU KNOW WHAT? THIS IS A BAD IDEA!”
Call me crazy.
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