For most people in Strategic Leadership positions this statement is a constant in their lives. Outsourcing has been here since the beginning of time and is not a new concept. However, when, what, how and where organizations do this are the variables that these strategic thinkers need to address on a daily basis.
20-30 years ago sending your goods for manufacturing to the Far East was a sure fire way to reducing your costs. Then it was the turn of India and South Africa is now the sweetheart of the Strategic Outsource.
For most organizations only non-core activities are ever considered for outsourcing. What if some of those sacred cow non-core activities can be better and more cost-effectively delivered by a third party? Can the definition “Core” and “Non-Core” not change as the organization is evolving? Wrestling the sacred cows (Core activities) from managers who are convinced and who convince others that their organizational universe would topple if they or their function are not at the helm of this activity, is an hard, yet not impossible task. Additionally, they have built such a mystique around what they deliver to the organization that engaging them to reveal their black box is neigh on impossible. For most of the Strategic Leaders the fight is too hard and they get so much ear-ache from their peers and advocates for these sacred cow herders that they leave it alone and decide to concentrate on easier and quicker wins.
There are a number of issues here: 1) the sacred cow herders will close ranks, build higher exist costs to their function and make decoupling of their interests more difficult. 2) the organization is left to knock on the doors of the usual suspect i.e. Head-count reduction. Which means that essential knowledge is leaving the organization because top management did not have the courage to do what was right. 3) The wrong activities get outsourced. This mean is that the outsource-market providers may not be mature enough in their offering to provide the service or activities that these leaders have decided to outsource. This will have 2 consequences, when the outsourcing does happen, the internal customers effected by this outsourcing is very unhappy as the service provider is not “sophisticated enough, or does not know what they are doing, or we have to teach them everything we know, why are we outsourcing to someone who does not know our world and the work? What is management thinking?” Two, the outsourcer will spend so much time and energy trying to satisfy your requirements that they cannot actually see the long term benefit to their organization to service you unless they renegotiate the terms of the contract. Making for both sides to become hostile and unhappy about the deal they have done.
No one said that outsourcing is for the faint-hearted, but what still amazes me is that the important first questions have not been asked or, as explained above, had been asked, but internal opposition is such that the non-core activity gets to live on in the organization. Attaining the right balance of Core/Non-core activity vs Cost and ROI is key for an organization to be both stable and futurized*
Futurized definition: having the right people, systems, third party providers to be agile and well primed for the future.
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