BFM2013_2_01_Outsourcing as a magic wand

Since the late 1980s, a constant drive to downsize, rightsize, slice-and-dice businesses pushed many companies toward considering “externalisation of non-core activities” as a routine affair.

Outsourcing became a magic wand to convert fixed costs into variable ones, while improving the level of services received vs. what was previously delivered by internal resources.

But outsourcing is a business process to achieve change, and like any other process it requires a clear definition and understanding of your current position before you can introduce any change.

While introducing change inside your own company without sufficient knowledge could be “fixed” later on, outsourcing is usually supported by water-tight legal writs (this usually wasn’t the case with early 1990s contracts).

The previous issue described how every company works on its own eCI (embedded Corporate Identity), i.e. what is the accepted behaviour within a company, as expressed by processes, organisation, etc.

As the Cheshire Cat in “Alice in Wonderland” said: you need to know where you are heading to before you can decide which way is the right one to go.

Once you know where you are, you can define the destination, and start thinking about the “how”.

Outsourcing is more than just a solution to the “how”, and unless you are able to identify and communicate effectively the current status of what you outsource, all that you obtain is just a long-term restructuring of costs.

Some companies simply outsource out of despair, seeing outsourcing as an easy way out of a history of mismanagement and spiralling costs, while others simply are unable to find the human resources they need on the market.

As it will be discussed later, defining the priorities is obviously a bonus when short-listing outsourcing suppliers- and building the right list of priorities requires a clear understanding on the purpose of the outsourcing: what are the issues that should be solved by outsourcing?

Actually, the way most outsourcing contracts are built, if you do not document correctly the current status, you can expect a short-term decrease in costs, to be more than compensated by unexpected costs whenever you and your supplier find some “extras”.

“Strategic Outsourcing” requires a contract built to ensure the economic viability of the outsourcing activities, as explained in the next section.