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For in that sleep of outsourcing, what Dreamliners may come … and when?

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The Senate just passed patent reform legislation.

So here’s a thought: Rather than reform the Patent and Trademark Office (PTO,) why not just outsource the sucker to the European Patent Office? It would be cheaper and far less risky than fixing the one we have.

This follows the usual but unadmitted reason businesses outsource. Shorn of all the academic fur that surrounds the subject, businesses outsource when they’ve given up on their own ability to be competent at whatever-it-is.

And so, they turn over responsibility for it to another company, figuring their shortcomings will be magically transformed into superior competence when the relationship they’re managing is with another company instead of a fellow executive.But not always. Sometimes, businesses outsource just to be trendy. Or something.

Take Boeing and its approach to building the Dreamliner. As detailed in “787 Dreamliner teaches Boeing costly lesson on outsourcing,” (Michael Hiltzik, Los Angeles Times, 2/15/2011), Boeing decided to increase the number of externally sourced components six-fold compared to the 747.

Boeing’s Dreamliner mess was structurally dissimilar to a typical IT outsource — as much a strategic supply chain bungle as a botched functional outsource. Still, the article is well worth your time, because it provides a near-exact specification of how to engineer a failed outsource of any kind. Boeing’s failures included:

  • Poor due diligence.
  • Too-loose specifications.
  • Not managing its outsourcers once their contracts were signed.
  • Mistaking price for total cost.
  • Being incredibly stupid. I don’t say this lightly. By incredibly stupid I mean Boeing gave away both the high-margin parts of the original manufacturing, and the highly profitable replacement parts business that follows the sale of an expensive and long-lasting passenger plane, keeping mostly the low-margin final assembly work in-house. Incredibly stupid.

And finally, there’s this week’s subject: Boeing’s top executives ignored their in-house experts — their top engineers. One of them, Senior Technical Fellow L.J. Hart-Smith, had watched a similar fiasco play out at McDonnell-Douglas during the creation of its DC-10 and predicted the mess long before the decision to aggressively outsource the project began.

Boeing’s executives ignored him. And so, predictably and as predicted, the Dreamliner is now three years late and several billion dollars over budget.

It isn’t as if Boeing is alone in the ignore-your-engineers field. Long before, NASA’s engineers assessed the risk of catastrophic failure during space shuttle launches as being 1,000 times more likely than NASA management. As Richard Feynman pointed out in his classic analysis of the Challenger disaster, the management assessment depended almost entirely on this logic: It hasn’t failed before, therefore it must be safe.

More recently we had the Deepwater Horizon oil spill — another case of management ignoring engineers who warned of impending calamity, only to be ignored because of the exact same management “logic.”

What’s the solution — uncritical belief in whatever your engineers say? Of course not, although it’s a common challenge to the points made above — not surprising given how popular false dichotomies are these days. Halfway between ignoring your engineers and accepting whatever they have to say without question is the optimal mid-point: Listening to them, doing your best to understand what they’re doing their best to explain.

And, as part of this effort, making their competence, good judgment and positive intentions your default assumptions, to be accepted unless and until they give you reason to conclude otherwise.

Here’s why these should be your default assumptions: You, or your management team, or your colleagues elsewhere in the company hired these engineers and continue to employ them. Which means these really aren’t assumptions at all. They’re something quite different: Inferences, based on an assumption — that you (I hope!), your management team, and your colleagues are making good decisions about who to hire and who to retain.

Which gets to what just might be the most pernicious consequence of Boeing’s Dreamliner outsourcing decision, and one it very much has in common with traditional IT outsourcing arrangements: brain drain.

Companies tend to forget that outsourcing has more than one outcome. There’s the desired one: Addressing a business responsibility of some kind. Imagine for a moment that this happens as well as you can imagine.

And there’s this: The outsource means the outsourcing company no longer has important expertise required for its ongoing success on its payroll. That expertise now belongs to someone else.

So those experts you should be listening to, to caution you as to hidden consequences of your outsourcing plans? You don’t have them to listen to anymore.

You’ve replaced them with other experts, who have no loyalty to you.

And ulterior motives.


Thanks to John MacKenzie for calling the LA Times article to my attention.

Comments (11)

  • “businesses outsource when they’ve given up on their own ability to be competent”

    How true. As I’m sure Bob has pointed out before, if you can’t manage a function in house, what on earth makes you think you can competently manage it when it’s outsourced? And, if you don’t carefully and diligently manage an outsourced function, failure on an epic scale beckons.

  • Great article. Unfortunately, there are massive examples of this practice. Been going on for a long time.

  • The phrase I usually get back, with complete sincerity and no ill will, is “but that’s impossible!”.

  • Right on the nail this article. It has been pointed out in other articles that Boeing may have given the Chinese the knowledge to compete against their bread and butter product the 737.

    They have also out sourced IT so that you know need to call another company to get a user account. The engineering development systems are now managed by out sourced staff that have zero knowledge of an engineering development environment. But in some ones mind they are saving money.

  • 20 plus years ago, when outsourcing involved companies like DEC and IBM, the CIO gave this outsourcing criteria to us:
    If you cannot “do it” or “manage it”, you will not be successful in outsourcing it.

    The “it” was whatever process or operation that was a candidate for outsourcing. The “you” was You and your career.

    He always followed up with something along the lines that “If you/we cannot do it better than they do, then it probably will not be to the company’s long term advantage.

    I think of that every time I hear someone talk about the horrendous experience that they had with an overseas Help Desk. The quality of the experience and service would probably be just as bad, maybe worse, if the company had kept it in house and was managing it.

    On the other hand, outsourcing can be done. The best example I know of is Apple, as of September, 2010, they had around 50,000 employees. (September, 2006, Apple had 17,787 full time employees and 2,399 temporary employees.)

    Tom

  • “What’s the solution — uncritical belief in whatever your engineers say?”

    As an engineer, I’d say unequivocally yes.

    I’d bet there are many more cases where not listening to your engineers has led to disaster than there are cases where listening to your engineers has led to disaster.

  • Great article Tom. Some of these points I’ve heard before. But as obvious as it is, I havent heard much attention paid to observation
    The outsource means the outsourcing company no longer has important expertise required for its ongoing success on its payroll. That expertise now belongs to someone else

    Analysts of all kinds have to understand how the collective business processes will add up to the business goals in areas throughout the enterprise. Given that analysts are effective in their job, their loss can be a serious drain to the company.

  • You made a very prescient reference to Feynman’s analysis, see quote below from article in NY Times re: Japan nuclear reactor disaster – http://www.nytimes.com/2011/03/16/world/asia/16contain.html

    Michael Tetuan, a spokesman for G.E.’s water and power division, staunchly defended the technology this week, calling it “the industry’s workhorse with a proven track record of safety and reliability for more than 40 years.”

    Mr. Tetuan said there are currently 32 Mark 1 boiling water reactors operating safely around the globe. “There has never been a breach of a Mark 1 containment system,” he said.

  • Amen Brother, Amen.

  • Bob,

    I don’t think you’re being completely fair with the Japanese nuclear disaster. The plant only got hit with an earthquake of a far greater magnitude than it was designed for AND hit by a Sunami larger than it was designed for.

    You could use 20/20 hindsight to say they should have planned for that, but 8.9 is a mindblowingly powerful earthquake (top 6 in the past 100 years).

    I think when all is said and done, in the end there will be a very small area around the plant that will be sealed off from humans for a long long time, but on more widespread terms, this event will prove to be much much less catastrophic as Chernobyl was.

  • After 25 years in the corporate world observing and interacting with executives, I am coming to the belief that the character and personality traits that are conducive to rising to executive rank in a large corporation are not only irrelevant to success in an top management position but may actually be a barrier to success.

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