Outsourcing

This post sponsored by the Enterprise CIO Forum and HP.

Heather Campbell posted the following question recently:

I find myself wondering, have we outsourced too much?

Its a great question and one that should be asked more often.

Heather describes the IT Outsourcing Cycle thusly:

The outsourcing model goes something like this:  individuals are assigned to your account for a period of say two years.  And then, once experienced in your systems, cycle off to another account to learn something new.  This is how outsourcers keep their staff in a highly competitive environment.  You get what you pay for.  Just like many consulting organizations, you end up with a pyramid of expertise, many juniors on the bottom, a few seniors on the top and a 2-4 year cycle of new people coming on board and learning your systems from scratch.  How do you achieve excellence in this scenario?

Sounds about right.

When you first approach the outsourcing model (whether in IT or in any other part of the organization), you are looking for expertise. You are looking to outsource parts of your business that aren’t key to your competitive advantage.  Therefore, you can accept a small ‘turn-up’ period whereby the outsourced contracts are getting up to speed.

But…remember…you are paying for expertise. You outsource your operations and expect to have a cadre of IT Operations Experts arrive on-site to manage your operations.  And, most times, that’s exactly what happens. But…those people need time to get up to speed and become experts on YOUR systems and by the time they’ve picked up the nuances of your systems, they are moved off to another project.

So, in effect, you are paying your outsourcing company to help them keep their benches clear and train their consultants. Nothing wrong with that…thats the business.  But…you are also paying to lose knowledge. As long as you are aware of this, pay away but don’t be surprised when, in a few months or years, you have new people re-learning your systems.

Like I said, this is the way of the outsourcer and a reason that you should never outsource your most critical pieces of your business.

The trade off decision that needs to be made when outsourcing is this: First…can you afford to outsource this function (in both time and money). Second…Is the time / effort of training / retraining people over time worth it to you?  Third…can you afford to bring this function back inside of outsourcing doesn’t work?

So…my answer to Heather’s question isn’t a “yes” or a “no”. Its a “maybe”.   Maybe some organizations have outsourced too much and maybe some organizations haven’t outsourced enough.

But…the real question (to me) is: Have we outsourced the right stuff?

Image Credit: Questions By Valerie Everett on flickr

This post sponsored by the Enterprise CIO Forum and HP.

  • http://twitter.com/CharlesHGreen Charles H. Green

    This is a critical issue, and I think your answer is on the right track, Eric. Let me try and push it one step further.

    The assumption built into the above dialogue is that the relationship between the outsourcing client and outsourcer provider is transactional. The ideal transaction is presumed to be frictionless, i.e. the outsourcer’s staff hit the ground running immediately. As you point out, such is not life, hence the search for an optimizing solution.

    The presumption you make about the solution, I think, is one of compromise. Let’s figure out the right balance between what’s critical and what isn’t, what we keep in and what we keep out. Makes perfect sense.

    But there’s another way: reframe the connection away from a bloodless one-off transaction to an ongoing relationship.

    Start with the idea that the benefits of a good outsourcer are not merely quarter-to-quarter cost savings. They are, potentially, a whole lot bigger. They are systemic risk reduction, the ability to clearly focus on fewer items, the ability to seek world-class execution in the outsourced area, the ability to gain greater strategic flexibility in other areas, and that’s just for starters.

    With such benefits, why limit ourselves to evaluating the outsourcer solely in terms of expertise execution in a mini-time frame? A much more strategic relationship calls for a much more strategic set of evaluative tools. With that much at stake, wouldn’t a smart outsourcer client seek to actually invest in the outsourcer’s people’s ability to serve them? Why not get much more involved in the development of the outsourcer’s staff? Why not sign longer-term contracts, with better understandings of the mutual obligations?

    The root of the issue I think is the overwhelmingly instinctive, baked-in tendency of western business to see things in short-term, transactional, net-present-value, quarterly-earnings, metricized, behavioral, here-now terms. If we can loosen up our thinking to see things in longer terms, not be so obsessed with short-term payoffs, we can begin to recognize far greater opportunities for collaboration with many partners, including outsourcers.

    Don’t settle for satisficing. Dare to be great, a better solution is available, think relationship outsourcing not transactional outsourcing.

    Or so it seems to me.

    Charlie Green
    CEO Trusted Advisor Associates

    • http://ericbrown.com/ Eric D. Brown

      Wonderful reply Charles.

      This is what I always argue for when I talk to people about outsourcing. Its not just a ‘transaction’…to be successful, outsourcing must be relationship based.

      Every outsourcing project that know of that has failed is because it was approached as a transaction. The organization chose an outsourcing partner based on transactional ideas (cost, coverage, etc) rather than which partner would be best long-term. On the flip side, every successful outsourcing project I’ve seen has taken the relationship approach.

      Thanks for stopping by!

  • Steve

    Hi Eric,

    Excellent point about outsourcing the right stuff.

    To your point, many people believe you should never outsource your core business. Never outsource your eyes.

    Some research from Michael Mah about the number of defects in outsourced projects.

    http://www.yourdonreport.com/index.php/2007/02/13/michael-mah-offshore-developed-software-projects-have-28x-as-many-bugs-as-average-software-projects/

    • http://ericbrown.com/ Eric D. Brown

      Steve – Thanks for the link to the Yourdon Report….Looks very interesting!

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