Top Ten Outsourcing Lies

Top ten lists are very popular, so after a recent meeting where I was hearing a few positives of IT outsourcing, I had a strange sense of Deja Vu.  Now the word lie is a bit strong because it implies a conscious, wilful deception.  I do not believe all folks that sing the praises of outsourcing suffer from some affliction.  I'd like to think the quote attributed to Napoleon Bonaparte is a better fit:  Do not ascribe to malice what can be easily explained by incompetence.  That said, this top ten list can also be used as a check list to ensure you have the right outsource and agreement in place.  It doesn't matter if it is a service, product, or project.  The proof is in the pudding as they say, and if you cannot evidence any of these items, you are not setting yourself up for success.

#10         An outsource improves business continuity.

It is naive to believe, unless it is in the contract, that an outsource has an Emergency Resource Plan or Disaster Recovery Plan that is as strong as your business requires.  Think of it this way, if you pass the treasure to someone else for safe keeping, are you sure you'll get it back?  Will it be there when you need it? Many outsource companies have in their contracts a limit on liability to the cost of their service and not the value of the treasure.

#9           An outsource has comparable or better security.

Is the outsource's perimeter security and information security policy as strong as yours?  This should absolutely be in the contract, but like point #10, the further away from you the break-point is, the harder it is for you to do something corrective quickly.  There is also the irony that by opening a conduit to the outsource you are actually adding another break-point (that is out of your control.)

#8           An outsource has better quality.

Quality is very subjective unless you try to quantify it through solid metrics.  At the end of the day service satisfaction, cost and timeliness are bottom line indicators.  Defining Quality can be a job in itself.

#7           An outsource is faster.

There may be a few reasons why folks think an outsource might be faster, but the reality is usually Mythical Man Month:  The more people there are involved in a process, the greater the logistics overhead, the more opportunity for iteration and clarification, and the longer it takes.

#6           Outsources execute better.

Does your outsource measure its execution?  Do they share that data?  Do they compare to peers?  Do they believe in management frameworks or systems to guide all aspects of their operation?  Do they have a Continuous Improvement program?  Are their resources experienced and happy?  An embeded resource has a face and a certain level of trust.  Many outsources are black boxes.

#5           Outsources are cheaper.

You can't add the logistical overhead without driving down the other labour costs, especially for near-sources.  The first TCO reduction comes from releasing your trench staff.  If you presume these workers were paid competitively and were skilled to start, and were also loaded up with appropriate work, how can it possibly be cheaper by adding more expensive resources (like project managers, case managers, client managers) and cheaper resources (that equates to less skilled or experienced)?  Many outsources after five years are more expensive than in-house teams.  Off-shoring does take advantage of disparity in cost of living and labour market, but it has the downside of cultural and work-hours disparity, lesser security, and risky continuity.

#4           Outsources have better people.

The best people tend to be paid well and like being taken care of.  Many outsources do not hire the best people because those folks would make the labour cost go up.  Who makes a better burger?  The burger assembler at [fast food restaurant of choice], or James Beard?  (Beard is a renown chef and uses cream in his tasty burgers.)

#3           Outsources know the business.

An outsource might know their business, but do they know your business?  This is somewhat counter to core competency think.  To assume an outsource has the business knowledge in your field assumes that they also work for your competitors and/or have worked for you long enough to pick up your corporate knowledge.  Is every service desk or call center the same?  Not every application you use or product you produce is.   There needs to be a competitive differentiator somewhere.

#2           Outsources have deep benches.

It has been my experience that many outsources replace two-with-one, and not charge two-for-one.  Unless you offshore, the outsource is drawing from the same resource pool as your competition.  Why would you expect them to have better success at attracting and retaining resources given the cost pressure?  Benches get voided when there is a lack of work.

#1           Outsources follow best practices.

Outsources tend to do what they're contracted to do.  This is because most work needs to be billable, and strangely many best practices are not directly billable.  Take documentation for example.  It makes sense that an outsource would develop its own documentation and process models to help them service you better.  The reality is, it is not in their best interest, and they're not likely to share this learning with you anyway.  Best practices take time, even if the ultimate goal is eventually driving down the learning curve for the bench.  But figuring stuff out is directly billable.  A Tom DeMarco quote comes to mind: Crazy is repeatedly doing the same thing and expecting different results.

It comes down to core competency.  Does it apply?  It is rational to want to choose an expert to outsource work to that is their core.  At the same time, it is not rational to increase complexity in any system and expect a decrease in entropy.  Restated, you can't throw more uncertainty into the mix and still expect the whole thing to be predictable.  Predictable really means low risk.

Outsourcing is stupid.

A bold headline, isn't it?  If you define stupid as an act or behaviour lacking sense, then there needs to be a bit of context around this statement and justification to "Why outsource?"  "Outsourcing is Stupid" via CIOUpdate suggests why would anyone want to outsource IT when defects increase 35-to-40%?  For us old software engineering types, we were taught that defects found in the delivery phase of a project are 70-to-80% more costly to fix than those found in the specification and design phases.  That, and outsource projects tend to see project management and controls expand 25-to-30% that is a more expensive exercise.  The article goes on to state that the only effective reason to outsource IT is when a company cannot afford to do the work themselves.  To summarize the article, It is cheaper and better when you can do the work at home, especially when modern tools automate so much.

If you look at large companies, in particular resource companies, you can see a connection between the commitment of management to outsource, and the growth of the project management office.  With outsourcing, you tend to have management on both sides of engagement.  It seems like a lot of duplicated effort, logistical disconnects, and sacrificed quality for software and service provision that is 900% more ineffective.  These companies, like many large companies, have the resources to do the work themselves.

"When Outsourcing Goes Bad" from InformationWeek is a brilliant bit with more useful nuggets of information.  Of a survey of about 420 companies, only half ranked their outsourcing endeavours as successful.  One in six claimed their outsourcing was a disaster.  It makes sense though.   Many CIOs outsource for the wrong reason, and usually its not for increased efficiency (because how can you make that claim with all the evidence against it), but for that easy money reduction of operating cost.  This article mentions when IT is outsourced, the event itself requires board level scrutiny and continual review.   Many failures end up in costly litigations.  When the horses are out of the gate, the further they run, the harder they are to round up.

So again, why is it that companies that can afford to do it right, still pick the wrong path?   It can't be the core competency argument, because what large company would claim that their information systems do not present a material risk to their continuous operation?  So it must be ignorance, or skill-full politic in the deferring of blame.

And this reflects so poorly on the IT industry in general.  To reduce costs, you still need to go after the biggest spend that is your human capital.  When you outsource, the outsource absolutely will go for the cheap, warm body on the bench.  This continues to depress the job market and make IT an unattractive career.  And this in turn also drives the lack of credentials and experience in IT.

It would be so much better if continuous improvement, process efficiency, and quality control were the focus of solution delivery.  Execution excellence... how many companies have that sound bite in their mission or value statement?