Principal principles

Principle #1 of the KJR Manifesto: There are no best practices, only practices that fit best.

Principle #2 of the KJR Manifesto: To optimize the whole you must suboptimize the parts.

Which gets us back to outsourcing – when it makes sense and when it doesn’t once you peel the onion beyond the usual, shallow rationales.

Last week we explored the practical matter of whether a company’s executives might be better or worse at hiring and managing a given business function’s leadership … and leaving it to that leadership to make that function effective … than they would be at selecting, negotiating a contract with, and managing an outsourcer to make that function effective.

Because really, when deciding whether to outsource or insource, isn’t that the only question that matters?

What’s left to be said on the subject? The first two principles of the KJR Manifesto, that’s what.

Why? Because the usual arguments in favor of outsourcing talk about how it lets executive leadership focus on what’s “core” to the business. Because of Principle #2, core-ness, is, as it turns out, a double-edged sword.

That’s because the concept of “core” is pretty much synonymous with the concept of strategic focus, just as strategic focus is, or at least should be, pretty much synonymous with a company’s unique selling proposition – its competitive differentiation.

Which means it’s the moment you’ve been waiting for: another look at KJR’s favorite stalking horse – the pre-2008 General Motors, and how it was a train wreck that happened at three miles per hour over a span of twenty years.

What GM should have been focused on, and what would have prevented its derailment, was selling cars people want to buy, not on bribing customers with rebates in order to sell more financing contracts.

But even with a relentless focus on selling cars people want to buy, that leaves open the question of what leads potential customers to decide to buy a car at all, and what it is that leads them to choose one make and model over another.

You know what’s coming: Different car buyers care about different car attributes. Some care more about flashy styling, others about reliability, or fuel economy, or driveability, or pick your characteristics.

Which gets us to Principle #1, which in the end means whatever you want to optimize for will lead to trade-offs in everything else you might want to optimize for.

If, for example, you want to design a car for engine power and lots of it, the space you’ll need under the hood to mount a bigger engine constrains your ability to design a car that looks sleek and streamlined.

And vice versa. Additional trade-off examples are left as an exercise for the reader.

What does this have to do with the subject? If you’re on the board of a car company that’s supposed to sell cars people want to buy, and you understand what leads car buyers to choose one car over another, you’ll put a CEO in place who understands which of a car’s many characteristics the company has to be phenomenal at: Styling, engines, quality of construction, and so on. Whatever the competitive differentiators, they are the core –the buttons and levers the business can push and pull to sell more cars and sell them profitably.

They must be insourced.

Does this mean everything else can be outsourced? Yes it does, emphasis on “can.” “Should” is a different question entirely.

Bob’s last word: When looking at outsourcers, remember they have their own competitive differentiators – characteristics they optimize for. They’ll call them “best practices.” As you decide whether to outsource, and if so with whom, pay close attention to Principle #1. Because what you want aren’t best practices. You want practices that are best for you, which can be a different proposition entirely.

Bob’s sales pitch: No, I didn’t write this week’s column to sell more copies of the KJR Manifesto (full title: Keep the Joint Running: A Manifesto for 21^st Century Information Technology). But if you haven’t read it, you should. As one reviewer put it:

This should be required reading for all Boards of Directors and all Government leaders (MPs, Congressmen, Senators etc.) plus all of us in middle (and junior) management.Oh, and it is still a slim book which is almost impossible to put down! Amazing for a really great “management text”!