There are simple sourcing strategies. There are effective sourcing strategies. But there are no simple, effective sourcing strategies.
This, at least, was the perspective offered by yours truly at Outsourcing Strategies 2004 the week before last. It is, it appears, the minority perspective. The popularity of the Core/Context Theory — “Keep what’s core to your business and outsource the rest” — appears to be undiminished by the complete lack of any evidence to support it.
Complete lack of evidence?
Yes. In fact, that’s being gentle about it. In the past few years, two research teams reported the results of extensive research on what characteristics and practices lead to enduring business performance. The better-known, reported in Jim Collins’ Good to Great, found seven features common to outstanding corporations: A “Level 5” leader — one focused on building a great organization, not on personal recognition (I’m oversimplifying: there’s a lot more to Level 5 leadership than this); a strong, focused, coherent leadership team; a willingness to face the “brutal facts of their current reality”; clear focus around an organizing business goal (the “hedgehog principle”); creation of a “culture of discipline” (as opposed to achieving disciplined execution through close supervision); the use of technology as an accelerator; and reliance on the “flywheel” effect (building momentum for success on ongoing, continual, accelerating change, not on one-time transformational breakthroughs).
The second research effort was called the Evergreen Project. Described by William Joyce, Nitin Nohria, and Bruce Roberson in What Really Works, the project found eight factors — four primary, four secondary — that separated winners from the pack. While the factors aren’t exactly the same as those articulated in Good to Great, it appears the differences are more a matter of how each research team chose to define its categories than major disagreements as to what’s important. Having a clearly stated, focused strategy as stated in What Really Works isn’t very different from the hedgehog principle. Two other primary characteristics, flawless operational execution and a performance-oriented culture, together look a lot like instituting a culture of discipline and using technology as an accelerator.
The two studies don’t line up perfectly, which isn’t all that surprising. The Evergreen Project found that a flat, flexible organization was important to success. Collins was silent on this subject. And Evergreen’s list of secondary factors — retain and attract exceptional talent, creating industry-transforming innovations, growing through mergers and partnerships, and keeping leaders and directors committed to the business — have less overlap with Collins’ findings.
How to account for the discrepancies? When two study teams look at the same pile of raw data, there’s no particular reason to expect them to abstract the same generalities. The process of doing so isn’t purely analytical (Collins is direct on this point, describing lots of discussions and downright arguments over what a bunch of specifics might mean.) And since both pieces of research are correlative rather than experimental, this kind of disagreement is to be expected.
One point is clear: Keep the core and outsource the rest is nowhere to be found among either study’s recommended practices. Sounds to me like keeping the core and outsourcing the rest isn’t correlated with enduring business success.
(Keeping a wary eye on the ROI of individual projects or applying any other purely financial perspective on running a company is similarly absent, by the way, as is focusing on the maximization of shareholder value, two very popular points of emphasis among the current crop of business pundits … but that’s another column for another time.)
Adherence to the core/context theory isn’t among the factors driving outstanding business performance. It’s unsurprising when you look at how most large-scale outsourcing contracts are constructed. Much of their payoff comes from nothing more than the playing of financial games — a transfer of capital assets that front-end loads the benefits and back-end loads the costs. Gee, maybe that has something to do with why client satisfaction frequently runs out of steam just a few years into the average outsourcing relationship.
So why would a business theory that’s unsupported by the evidence retain such popularity?
Simple, easy-to-understand explanations are comforting — much more comforting than notions like the need for focus, disciplined execution and persistence. And given a choice between a comforting explanation and one that actually works, many people prefer comfort.
That’s one of the brutal facts of our current reality.