Wisdom Without Waiting: Ten Myths of Strategic Outsourcing
You can run, but you can't hide from the need to compete.
© John L. Mariotti
I am a big fan of partnerships. I even wrote a book about them. These days the onrush of change and technology means that no one can be good enough at everything. That's why good partners are very valuable. Choosing partners with complementary skills and compatible cultures is the first and most important step in partnering.
There is an alarming trend being promoted that I would like to debate in the rest of this feature. That is the trend to strategic as a solution to every kind of problem. The growth of large consulting companies and advocacy-consulting organizations like The Outsourcing Institute add fuel to many management's desire to run from problems and hand them to an outside contractor as if they will magically go away or be solved at lower cost because they are "out of sight, out of mind."
The ten myths promoted by many of these so called outsourcing specialists are these, and the facts are what follow the myths. Each week, two new myths and the facts that go with them will be posted.
M1. You can do "it" (whatever you want done) with no investment.
F: When you make no investment, you usually have no equity in nor ownership of what you "get." You may just be borrowing "it."
M2. You can buy the necessary knowledge if you don't have it.
F: Same answer -- you aren't buying it, just renting it. And competition can buy the same knowledge too, so what have you gained!
M3. You can buy market entry or share by using the outsource contractor's capability.
F: Wrong -- just renting it again, until competitor's rent the same entry and add some value of their own.
M4. It's easier to deal with variable or seasonal staffing fluctuations.
F: Only if the contractor can find someone with a counter seasonal need. Otherwise, there's no free lunch--you'll pay for the down times as soon as the contractor finds out it can't balance the demand either.
M5. There is no need for day-to-day management involvement.
F: True enough, and there is no control of day-to-day results either. You get in proportion to what you give--in day-to-day effort too.
M6. An easy way to solve a sticky problem is to outsource it to a specialist contractor.
F: Only if the problem is not a structural one that your company owns or causes. Then you have moved it further from its cause and made it harder, not easier to remedy.
M7. The contractor needs to know all about your business to be most effective.
F: Teach someone your business in detail and there is a real chance they will steal your business from you. Be very careful.
M8. Everyone says it's the thing to do.
F: Watch who the everyone is and what their motives are. Most of the people quoted are ether ones selling the outsourced services, not the buyers. Check it out with some of them. A lot of them are reversing the outsourcing and bringing work back in-house (insourcing) because of over promised and under delivered outsourcing contracts.
M9: The cost is less if you outsource it.
F: Only true if the outsource contractor is significantly better than you are because they also have to cover their own S. G. & A. and add a profit to their cost before it becomes your cost.
M10: They promised they would do things for us they won't do for the competition.
F: If they'll do it for you, they'll do it to you. Caution!!
There are many advantages to using third party contractors. They do have special skills, knowledge, resources, technology that you probably need not own, nor can justify buying because you don't use them enough of the time. As stated earlier, outsourcing to a contractor with complementary skills who has a compatible culture match, where there is something comparable in it for both of the partners is usually a good idea.
The time to be very wary is when the outsourcing deals with the core know-how of your business. It is imperative that you clearly understand what it is about your business that is intrinsic to the value you create. You have certain core competencies and capabilities that are the reason you are still in business. If you outsource those, or reveal critical proprietary aspects of them, you may just have given away your business for the future.
It happened to Schwinn Bicycle Company. While there is much more to the story, one aspect of it is crystal clear. Schwinn shared all of their critical know-how with two different Asia bicycle producers how to design and produce the market leading dealer line of bikes. Then when the going got tough and Schwinn tried to push them around, the suppliers simply took away large pieces of Schwinn's U.S. business. They had all the know-how to do it. Schwinn is still rebuilding and only has a little more than half the volume ten years later.
The bottom line is that strategic outsourcing used intelligently with partnering is powerful medicine. Like any powerful medicine, use it incorrectly or foolishly and the results can be disastrous. Beware of the "snake-oil" salesmen who tell only one side of the story. Their myths can be fatal to your company.
