Making Outsourcing Work: Avoiding Three Common Fallacies

By Ilya Bogorad

Few subjects are as controversial in the business world as outsourcing,  be it offshore or nearshore. If you invite a group of executives, managers and professionals to discuss the subject, the resulting conversation won’t be boring.

Horror stories will intermingle with accounts of epic success, passionate disagreements are virtually assured and in extreme cases some hot heads would insist on taking it outside. Serving strong coffee at such an event is not a good idea and alcohol should be avoided entirely.

If you are thinking of outsourcing one of your functions or business processes, you may emerge from a discussion like this quite confused. In the cacophony of opinions, who should you listen to? I suggest that you listen to me.

What the Other Partner Can Offer

Outsourcing is as old as the hills. Ever since the division of labor has come into existence, people have procured services and products from each other because the other party could furnish them better and/or cheaper.

The procured services or products can be used for internal consumption or form a part of our own product or service offering. As an example, we don’t have a recording studio in our office. When we need to make an audio or a video recording as a part of our work for a client, we pick up the phone and call professionals.  It would be cost prohibitive for us to do it in house, in terms of both time and money. Besides, this is not our core competency.

If we were in the business of producing television commercials, it is likely that we would have our own studio. Not only would the volume of work make it attractive economically, more importantly, it would become our core competency. It would be important to us to be in full control of the process and we would be looking for ways of doing it better than anyone around.

Let me share with you examples of three most common mistakes in decision making concerning outsourcing.

The first mistake is to outsource a function that is core to the business. A household name in office equipment and supplies outsourced its large item delivery to a gaggle of small local firms. It seemed like a good idea at the time because getting stuff to a customer did not appear to be their core competency. In fact, it should have been considered a core competency because customer experience does not stop with signing the credit card slip. The third party delivery folks proved to be unreliable and clients started to complain and then voted with their feet.

The second mistake is in outsourcing something that no one really does better than you. A world-class hospital in Toronto once outsourced its IT Helpdesk to a well known IT consultancy. This sounded like a reasonable enough thing to do at the time. Except that it did not work. Calls were handled by a shared call center and its agents just could never develop the same level of awareness of the environment and urgency as the hospital own staff. When a doctor called from the operating room, an agent dutifully but painstakingly followed a script, which would drive a surgeon with a patient under the general anesthesia berserk. Medical staff complained ad nauseum, the CIO was in a perpetually hot seat and it never really got any better.

The third mistake is what I have come to call a separation of layers. In the beginning of this article I suggested that a variety of opinions and experiences exist with respect to outsourcing. Incredulously, such dissonance can be often observed within the same organization. The typical opinion of an executive is rosy, while the typical view of those on the floor is steeped in cynicism. The middle management commonly acts as an insulating level. If you are considering outsourcing within your organization, you have to instill a sense of transparency and accountability to make sure that difficult issues are openly discussed, diagnosed and acted upon. Not doing it is ridiculous.

Outsourcing can be done right, which is the only way it should be done, in my opinion. Let your outsourcing decisions be informed, sound and honest.

Ilya Bogorad is the Principal of Bizvortex Consulting Group Inc. a management consulting company with clients worldwide. Ilya specializes in building exceptional IT organizations, decision making and business cases. He can be reached at ibogorad@bizvortex.com or +1 (905) 278-4753.