What I love about management trends is their predictability. Some consultant or analyst will work with a successful company and latch onto some practice of theirs or other. This, the consultant will solemnly claim, drives their success. And if you would only adopt the same practice, you’d enjoy that success, too.
Fame, riches, and book contracts follow, along with schools of remora-like copy-cat consultants. Always eager for new trends to report, packs of business journalists join the feeding frenzy, and a full-fledged management trend ensues.
A few years, Chapter 11s, migraines and management turnovers later, people sort it all out and discover that once again they’ve found, not a panacea, but a useful idea for some select, carefully chosen circumstances. That’s okay though, because by then another management trend will be brewing.
We’re about ready to turn the corner on the outsourcing trend, and after quite a bit of cogitation and soul-searching, I think I have it figured out.
But first, a word from the Full, Unadulterated Disclosure Department (FUDD): my employer, Perot Systems Corporation, is in the outsourcing business. I’m not exactly a disinterested party.
Okay, on with the show. Let’s start with three outsourcing myths:
Myth #1: Outsourcing is a manifestation of corporate greed. Corporations, of course, feel no emotions – they’re organizations, not people. Corporations try to maximize profits, execute strategy and tactics to succeed in the marketplace, and increase shareholder value. Good management requires obtaining the optimal balance between quality and price in the acquisition of all goods and services. That includes decisions about whether to have employees or contractors provide various corporate functions.
Myth #2: Outsourcing leads to massive layoffs. I’m sure it’s happened. More commonly, workers don’t even change desks – they just change employers and keep on doing what they’d been doing before, although they may lose some of the perks of seniority along with the change. Outsourcing companies can’t afford to keep hundreds of employees on the bench, waiting for the next contract to come along. Big outsourcing contracts lead to massive hiring binges, and it’s a whole lot easier to hire pre-trained employees who already know the systems.
The truth behind Myth #2: quite a few employees wash out the first year. Look around you. Are all of your co-workers really worth keeping around, or are some of them decent people who aren’t bad enough at their jobs to fire? Companies hold outsourcers to a higher standard than employees, and when non-performance can lead to execution of penalty clauses, substandard workers don’t last.
Myth #3: Outsourcing is for non-strategic functions only, or non-core competencies. Companies routinely outsource the strategic function of marketing to advertising agencies, and nobody thinks twice. Core competencies? Misplacement of cause and effect: Why, and for that matter how, could a company outsource what it’s best at and not lose both money and quality?
So when should you outsource?
For the past several weeks I’ve been writing about the difference between internal and external customers, and I think that discussion holds the key. Outsource when you want workers to think of your company and its employees as their customers. Insource when you want workers to make your company’s customers their customers.
When you use a contractor, you are their customer, and they’ll treat you that way. Tell them what to do and they’ll do it. That’s the nature of the relationship. Your employees, on the other hand, should focus on creating value for paying customers, not each other – that’s the quick summary of our long-running critique of the “internal customer” concept.
That leads to an astounding irony – managers who adopt the “internal customer” philosophy lay the groundwork for outsourcing their function. They’re acting like outsourcers, not employees, and that invites a comparison with external service providers.
And you thought somebody else was doing it to you. If I’m right, outsourcing is often a self-inflicted wound.