Outsourcing: The Internal Value of the External.
The last few years have seen two contradictory trends impacting on the world of outsourcing. On the one hand the open talent economy has led to the increasing employment of contingent workers and an impulse towards more varied and flexible working practices, a medley of approaches in which outsourcing is an attractive option. On the other hand, politicians have used offshore outsourcing as a scapegoat when discussing job shortages, a way to shift responsibility for job shortages from their own policies and onto those of corporations, making a reduction in outsourcing a good PR move for many companies.
In this climate, do the benefits of outsourcing outweigh its challenges and costs? And if so how can it best be managed?
A huge case for outsourcing
The value of outsourcing is demonstrated on a vast scale by the success of Bharti AirTel Limited. The largest telecoms provider in India, serving a market that is growing in both size and wealth, Bharti’s work is almost entirely carried out by outsourcing. None of the technical work is provided by the core company, with both software and hardware needs being outsourced. Bharti itself focuses on branding, creating the connections between services and ensuring a smooth customer experience. From 2003 to 2010 its sales revenues grew by 120% per year and its net profits by 282% per year. By any financial measure, Bharti AirTel is a huge success.
But you don’t have to build your business around outsourcing for it to work for you. Specialist firms can often provide highly efficient services that fulfill a job better and more cheaply than trying to do everything in house. And if an outsourced resource fails to deliver then you can go to another provider rather than face the challenges of firing and hiring anew.
Learning from outsourcing mistakes
We can all learn from our own mistakes but it’s far less painful to learn from those of others. Nowhere is this truer than in outsourcing.
Boeing’s 787 Dreamliner was an infamous outsourcing disaster for the firm, failing to live up to its promise in nearly every way. But it was the way the outsourcing was done, not the fact that it was done, that caused the problems. Keen to get the 787 up and running, the company broke the project down into separate parts, many of them provided by different companies. Because this was done too early in the process there was a lack of design integration and the parts didn’t work properly together. Outsourcing at the right stage in your process, and knowing exactly what you want from the outsourced resource, is vital to success.
The case of Blackberry, as discussed by Michael G. Jacobides, is another useful one. Blackberry ran its value chain in a way that allowed other companies to gain ground in the sector, rather than in a controlled fashion. By ensuring that you remain a dominant actor (a true partnership) in an outsourced value chain, one who helps shape the customer experience, you ensure your own place in the eye and the budget of customers.
And if you think that you will receive bad publicity, whether externally or within the company, for your outsourcing then have a defense prepared. If you have a strong case for outsourcing, and there is indeed a strong case to be made, and you are ready to defend it, then you can avoid being stalled by awkward challenges.
Making the most of your tools
Outsourcing is just one more tool in a manager’s toolbox, but it is a very valuable one. Used right it can bring great benefits. So look at where outsourcing can benefit you and plan to use it well.
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