All Posts by Bob Lewis

|In: Outsourcing|Last Updated:

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 21st 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”!

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|In: Industry Commentary|Last Updated:

“We don’t,” my client explained, “want to be in the data center business.

It’s a common negative want shared by IT and business management alike in many companies, especially in the context of pursuing a Cloud strategy instead.

It leads, or should lead to a diplomatically phrased version of the contrapositive question: What business does the decision-maker in question want to be in?

Enter the dreaded mission statement, which in principle should be the go-to source for the definitive answer, which in theory should yield a very short list (it should contain no more than three items and I’m being generous) of the business functions the company won’t outsource.

If, for example, you run General Motors, and thanks to KJR you figured out you want to be in the sell-cars-people-want-to-buy business and not the bribe-people-to-finance-cars-they-otherwise-would-never-buy business, you’d easily figure out the importance of outsourcing everything except Marketing (to understand what people might want to buy) and Advertising (persuading people they want to buy GM cars).

And maybe Distribution given that, except for Tesla, car-buyers mostly buy cars from dealerships.

Design, engineering, manufacturing, accounting, human resources, and information technology? These are all businesses you don’t want to be in.

They aren’t, in ConsultantSpeak lingo, “core.”

This brings up an important dimension to getting the right answer to a question. The obvious dimension is the research, comprehension, and analysis smart people undertake to arrive at the best response.

The second, less obvious dimension, which even smarter people explore, is making sure they’re asking the right question.

In this case I’m not entirely sure deciding what business you want to be in, or, if you prefer, what business functions are and aren’t core, is the right question.

The right, or at least the better question is whether your business can run a given function better internally or by contracting it to an external provider.

If you run a small or medium-size business, you should probably outsource any business function that doesn’t differentiate you from your competitors. Outsources will have economies of scale you can’t possibly match, so whether it’s IT or advertising they can probably do it better, faster, and for less than you can.

Does that mean large enterprises should always insource? They can, after all, match or even exceed the economies of scale achievable by many potential outsourcers.

Not necessarily. In particular, an executive culture rooted in control and distrust can cripple whoever is managing an insourced function but will happily delegate most decisions to an outsourcer so long as the outsourcer meets its contractual obligations.

Which clears up what “We don’t want to be in the data center business” frequently means – that what we really don’t want to do is delegate the authority and responsibility for managing a data center to in-house IT management.

Bob’s last word: Often, behind not wanting to delegate authority and responsibility is the thought that “we” – we being whoever doesn’t want to delegate whatever it is – don’t think we can do a good job of hiring someone to run the function in question.

Which implies that “we” do think we can do a good job of selecting a vendor, negotiating a contract, and managing the vendor once it’s signed.

I’m not clear why “we’d” think that. But, it appears “we” do.

Bob’s sales pitch: In the end, this week’s column is all about when and how to delegate. If you’re looking for the KJR perspective on delegation, check out a copy of Leading IT: (Still) the Toughest Job in the World. It has my personal endorsement … and I wouldn’t steer you wrong, would I?

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