Outsourcing is a Load of Crap

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
remaining staff were largely jaded, fearful higher than expected proportion of work-to-rule behaviour among remaining staff culture of finger pointing developed as each side tried to justify their existence deliberate attempts to derail the vendor, either actively or passively sense of futility among remaining staff, averse to accepting new work in case it might be taken away unreasonable, unrealistic demands deliberate vendor deception	sneaky behaviour, deliberate attempts to confuse satisfaction measurements exhausted staff, tired of fighting the client high turnover of vendor resources in an attempt to suggest outsourcing troubles were the results of individuals’ poor work (rather than a larger problem) “out of sight, out of mind”–because they’re not visible, and don’t work in the same time zone, the client assumes offshore vendor resources aren’t working hard salespeople making galactically stupid (and ultimately impossible) deals deliberate client deception
anger, recrimination, dissent, acrimony, frustration, blame and resentment on both sides

 

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
live connection to vital data was severed by corporate firewalls accuracy of data fell into question as live connection was lost, and maintained by third parties transborder data transfer created legal hassles that required the client to purchase additional infrastructure (and increase the size of the outsourcing fees to add staff to maintain the new infrastructure) depending on time zone, the client couldn’t readily contact offshore resources to discuss work client had to pay for additional layers of management and quality control, to ensure outsourced work proceeded properly…in some cases this meant opening an offshore office and transitioning personnel to the new location to keep an eye on things	vendor would share information only at the highest levels; lower level client staff would hear first about a problem from their management depending on time zone, onshore overnight batch jobs cut into prime productivity hours offshore vendor resources unable to meet the level of efficiency of client resources who had been doing the work for ten or more years to win a sale, vendor offered fixed bid agreements with the client that could not both be profitable for the vendor and meet the quality standards of the client–SLAs were never achieved, measurement periods were protracted, sometimes for years
extreme disorganization on both sides, long past the initial outsourcing action uncertainty on both sides, in the details, of who was responsible for what…and a joint unwillingness to take on work that had fallen through the cracks of the initial agreement

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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