Random thoughts on Outsourcing

One of the unpleasant words in corporate life is 'outsourcing' since it is assumed to be a synonym for retrenchment. Thus, hearing the 'O-word' in meetings causes anxiety attacks and sleepless nights as everyone starts imagining all sorts of worst-case scenarios—"does the list include my role? my function? my unit?..."

However, outsourcing need not create all these negative emotions if used for the right reasons and purposes, and the rationale is communicated well within the organisation.

Since O-word generates negativity, it is worthwhile to mull over the wrong reasons for outsourcing before exploring the better ones.

1. Cost cutting: It is often said that getting the same work done by an external party is more cost-effective than by an in-house team. However, in most cases, the projected cost savings are just the optics of shifting the costs from one bucket (say, direct) to another (say, indirect). Also, just over a couple of years, the cost difference tends to evaporate (irrespective of which bucket it remains) as nothing comes for free or at a marginal cost forever. A further significant disadvantage of this approach is that it will soon create an issue of critical technical know-how residing outside the organisation. Hence, it is common to see organisations oscillate between outsourcing and recruitment drives every few years as they move from one thought process to another. In other words, except in books for some time, outsourcing as a cost-cutting measure rarely has any real benefits.
2. Shifting the liabilities: Another (covert) reason for outsourcing is to move the liabilities. Riskier jobs are outsourced with the intention that, in an unfortunate event, the liability (and the bad publicity) will reside outside. However, this never happens, especially in this well-connected world and 'the buck' will eventually find its way to the right place! The primary responsibility for all actions always lies with the owner. Further, if at all anyone is willing to take unlimited liabilities from another person, it will always come at a very high cost. Another point also to consider is that moral responsibilities (and reputation) never get outsourced at any point however smartly the contracts and agreements are worded.

Outsourcing will be an excellent strategy to aid organisational growth in the following cases.

1. Outsource areas where cutting-edge technology is with external parties. Unless you are an R&D organisation, technological breakthroughs are usually found in specialised businesses. Thus, not having an in-house 'R&D' group could be an advantage for the organisation to plug and play different technologies that will suit the requirements at various times.
2. Outsource non-core areas: This helps the organisation focus more on its core areas, avoiding noise and distractions. But it is pertinent to distinguish between core and non-core to get this strategy to deliver the objectives. 

• Though it may sound very elementary, organisations often lose track over the years and forget their core purpose. When organisations outsource core competence (their reason for existence), they are cutting their bones. Thus, it is always good to pause once in a while, take a helicopter view of where you are heading, and make course corrections as needed. Retaining the core competencies within the organisation will also help the organisation quickly to recover from any black swan event.
• Similarly, outsourcing areas or functions that impair the ability to respond to a crisis is never a good idea. When things are going smoothly, it is tempting to feel that certain functions or roles are redundant or can be left to external parties to manage. With people who have experienced or handled an operational exigency no longer available in the system, you rely more on luck than skill to run the operations. When organisations outsource their crisis management skills, they are removing their muscles. A poorly managed crisis is a foolproof way to tarnish one's reputation. And what a bad reputation can do to an organisation needs no further explanation.

#management #mentoring #outsourcing #outsource #outsource #leadership