Outsourcing Redux: Thinking Global, Staying Local??
Posted by Sue Perlmutter on Wed, Aug 19, 2009 @ 04:22 PM
Since outsourcing is one of my global obsessions, my cultural antennae naturally shot up when, in the past month, I came across several interesting pieces on this intriguing topic. This took me by surprise at first, since it seemed almost reminiscent of the early 2000s, when talk of outsourcing and its many iterations -- insourcing, multisourcing, and so on -- was everywhere, even though the process itself has been around for decades. Many fine works indeed appeared on the subject, and it was almost impossible to imagine that after so many years of descriptions, prescriptions, advice and caveats pouring in on outsourcing, there was anything else of value to be written or said about it. However, with nearly everyone in global business trying to make sense of today's capricious economy, and all business practices and trends thus fair game for revisiting, recycling and re-setting, this does in fact seem plausible. Where outsourcing is concerned, this is especially true, given the pressures for cost cutting and efficiency and the quick fix that this practice has, for better or worse, historically provided.
Two outstanding podcasts, the FT's Digital Podcast of July 28 ("What's Going on with Outsourcing?") and Harvard’s Business Ideacast #157 of August 7 ("Restoring American Competitiveness"), together provide a comprehensive array of compelling insights into outsourcing in today's business world. The FT reports on the state of outsourcing in terms of lessons learned (and those ignored), historical shifts and, using experience as a guide, on what companies should be thinking about and wary of in the future. Professor Gary Pisano, whose interview comprises the Harvard podcast, has new, almost revolutionary ways of looking at outsourcing, and as such, provides fascinating insights as to how flawed thinking on its use has in fact led to an erosion of America's competitive edge in the marketplace.
The FT, in its parting words before taking its summer podcast break, described trends in outsourcing which companies have embraced over the past decade or so, noting a shift from 'knee jerk outsourcing' (i.e. jumping on the bandwagon in a 'fire! aim! aim!' frame of mind) to insourcing, and back to outsourcing/multisourcing again as a reaction to today's looming cost pressures. The authors feel, as does Pisano in Harvard's podcast, that this is clearly a mistake. Companies should instead focus on what their core competencies are, on what is central versus what is ancillary; advice that, while delivered ad nauseum over the years, apparently hasn't been heeded. Pisano posits that in dismissing this, and in not looking more deliberately into a company's future needs when contemplating outsourcing, the U.S. has in fact lost its strong position on the world stage. His example of the U.S.' current dependence on certain Asian nations for sophisticated automobile battery production, a discussion now very much in the limelight, highlights how improper outsourcing has crippled innovation rather than promoting it. Along with this is the notion that companies are usually quick to outsource what they're not particularly good at, and the distinction is astutely made between what a company is good at and what is key to its value. This, too, is not advisable, since in many cases, addressing and then developing skills in these weaker areas would make companies stronger in the long run. The flip side, and far worse, is the danger of outsourcing sectors that the providers can then run with, and in this scenario, Acer's meteoric rise from outsourced party to top tier personal computer company provides a sobering cautionary tale. There is the additional consideration which Pisano mentions, that of the degree of difficulty of gaining back that which a company has outsourced, and uses the U.K. as a cogent example. In today's interconnected universe, it is easy how this could present a formidable challenge, and how, in the bigger picture, viewing manufacturing as a sector to be outsourced has perhaps not been such a good idea after all.
Additionally, the downsides of multisourcing -- using multiple providers instead of one -- are outlined in the FT podcast. The authors feel that, as experience has demonstrated, managing multiple providers adds a huge degree of complexity to the process on so many levels, from legal to logistical. Contracts for outsourcing deals, for example, are typically quite lengthy and complicated in themselves, and can be thousands of pages long, even with a single provider, requiring enormous resources when managed in a multisourcing framework. Envisioning possible cultural obstacles and conflicts arising from a multisourcing arrangement (and, incidentally, contracts themselves are culture bound) would be surely be daunting where national as well as organizational cultures are involved.
Both authors' prescription, then, for very deliberate planning, investing, coaching and training in any outsourcing deal is well taken. Just how feasible it is for companies to put this advice into practice in today's environment is the larger question, and one that will certainly bear watching.
