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Outsource magazine: thought-leadership and outsourcing strategy | September 22, 2017

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Stupid is as stupid does…

Stupid is as stupid does…
Jerry Durant

Maybe the title is a bit harsh but it is certain to attract attention and point to problems that affect the outsourcing industry. It is quite interesting that the tenor of such a bold statement, taken from the epic movie Forrest Gump, can produce positive reactions.

“It means that an intelligent person who does stupid things is still stupid”.

“Good deeds are more important than good looks”

“Forrest was deemed by many to be ‘stupid’ because an IQ test showed him to have an IQ of 75.  He’s not very smart, and he doesn’t understand the complex motives that make people do the things that they do.  But he’s smart enough to recognise and observe that the things that ‘smart’ people do often don’t make sense. In fact, I would say that he’s very much like the child in the classic tale of ‘The Emperor’s New Clothes’ who is the only one to observe that the emperor is naked. ‘Stupid is as stupid does’ really sums up this major theme of the movie.  It isn’t the person who scored 75 on an IQ test who is stupid; it is the supposedly intelligent people who do stupid things”

“No rhyme or reason to foolishness or to fools practicing it.”

In short, well-intentioned people may follow a path that has been traveled by others only to understand and sometimes discover that critical errors in judgment have been made. Whether you are presently involved in a sourcing relationship, contemplating a new external source for servicing your business needs or have absolutely no interest, there are many lessons that can be taken away on how to reduce risk, retain a commendable return-on-investment (ROI) and to achieve the results that you desire

The Onset

For companies entering into the world of outsourcing, whether domestically, nearshore or globally the question of the 3 W’s (Why, When, Where) comes into play.

Why?   

More interesting than why are the reasons behind the decision to outsource key business activities.  These conditions can and will change over time and thus it is essential that the overall goals be re-examined and adjusted for these conditions. There are both primary and secondary reasons for outsourcing. It is seldom the case that only one of these reasons is creating interest in seeking services outside of your company.  These can include:

Primary Reasons

  • Competitive Advantage
  • Cost Reduction & Efficiency
  • Access to Special Resources and Capabilities
  • Assimilate Business Endeavour

Secondary Reasons

  • Renewed Focus on Core Business
  • Mitigation of Risk via Experts
  • Improved Customer Service
  • Increased Bandwidth
  • Skill Upgrading
  • Better Cost Control
  • Technology Infusion & Fresh Thinking
  • Asset Conversion & Capital Investment Avoidance

Taking this step is often done in far too casual and superficial a manner. While setting these reasons companies have failed to explicitly articulate, in depth, what this means and how it will impact the organisation.  As many have found, making the announcement to curtail self-directed service delivery in favor of a service supplier, has had severe consequences.  This have been seen in negative publicity in issues from outsourced aircraft maintenance at Quantas, Philippine Airlines and Jet Blue to employee protests at the Boston Globe, Escanaba School District and BWM (via United Auto Workers (UAW), International Longshoreman Association (ILA)). While companies may have sound and highly justifiable reasons that support a sourcing decision the steps taken to disclose, transition and to deliver change have been far from graceful.

When?

Timing is everything.  It isn’t simply a point in time but often what other events are taking place. For example, what will be the reaction if record earnings have been reported and a subsequent announcement is made regarding layoffs that involve an outsourcing arrangement (e.g. Cisco, HSBC and numerous others). Let’s face it, there is no good time to announce a reduction in workforce and it’s even more difficult to comprehend when profits are up. What creates the stir is the lack of understanding why these measures are being taken when these conditions exist.  As is often the case it’s because the well-measured press releases provide only a superficial glimpse into the reasons and lack a level of content that would help to better educate the employees and communities. So when is a good time? Strategically speaking it tends to be a question that can be best addressed by way of service transitioning. While some advocate the “big bang” approach to implementation it often fails to acknowledge social impact.  For the sake of expediency, sometimes fueled by ROI goals, we overlook human factor effects. The cost of negative publicity, employee discontent, and management upheaval eats into most of the benefits that you are working to achieve.

Where?

Forrest was surrounded by people who believed in him.  Some became instantly attracted to him, like Bubba and Jenny, whereas Lieutenant Dan took much longer to see the real Forrest: a person focused on outcomes. The selection of location isn’t simply choosing a popular location but making a decision based on the combined objectives of outcomes and risk. Companies have to start applying critical and pragmatic decision-making to where it makes most sense to seek suppliers from. To mitigate risk the question of safety, economic and social stability, and resource availability must be undertaken.  What was once a trend to single-source (to both a supplier and region) has given way to a more pluralistic selection. For over a decade the pursuit of the Holy Grail – aka Best Practices – has been undertaken as the pathway to expeditious and certain success.  Finally after two decades we come to realise that there is to certainty in this approach and only unbiased expert direction, supported by pragmatic evaluation can come closest to reaching the pinnacle for success.  This has been further illustrated by the impact of global economies and sporadic regional instabilities.  No one is immune from these conditions even if the services are provided for within Western markets.

The question of where, aside from the issues mentioned, is heavily influenced by the servicing being sought.  Regional resources and talent pools make some regions more suitable than others.  From small web-page projects to large-scale IT infrastructure servicing regions bring to bear levels of attractiveness.

Regional Focal Point Examples

Non-Voice BPO

Trainable Talent, Repetitive Delivery, Resource Pool

Voice BPO

Infrastructure, Linguistics (appropriate to client or client’s client),  Time Zone Availability

ITO

Highly Skilled, Facility Safety, Security, Dependability

KPO

Intellectual & Deductive Talent, Industry Knowledge Talent

Note: Each discipline is built upon subordinate types, and do not overlook regional safety & business opportunity factors.

For companies the decision to place business, or a captive operation, in a particular region can be influenced by much larger business issues. Placement can be driven by strategic global market goals and the ease of access to service providers by office locations for your company. There is nothing wrong having personnel within the region that can keep a watchful eye over operators or that can be occasionally dispatched to address operating issues.  Bear in mind, however, that these factors are not sole determination factors.

The Missing ‘HOW’… Run, Forrest, Run!

In some ways we have responded to outsourcing a lot like Forrest… we just started running. With the loss of Jenny, Forrest struck out on the road. We have a purpose but our expectations, based on our objectives are a bit blurry.  Even though they may be quite specific they often fail to amass enough content to anticipate what will happen after they have become a reality.  The upshot is disappointment and a questioning whether outsourcing, as a solution, is worth the energy.  Some companies have brought home outsourcing work to be done (e.g. Washington Mutual, UnumProvident, and the much broader case of Legal Advisory Outsourcing (LAO)) but these stories are not widely publicised.  Maybe they should not just to show the need for outsource discipline improvements but also to signify a continued confidence in local markets (a good topic for further discussions and a follow-on to retrosourcing).

Entering into or modifying buying behaviour to implement a sourcing strategy is not something that is easily carried out.  Inadequacies in global service procurement policies, lack of initial expert support and agenda driven by promotion objectives has raised questioned the legitimacy of the outsourcing agenda.  As recent as September 27, 2011 CIO Magazine (“Why ITO Deals are Getting Smaller”) raises the question as to whether outsourcing has reached its pinnacle.  Underlying to this is the question about the overall satisfaction with the service relationships.  We have seen captive operations go full circle from a strategy, to a retraction, to renewed interest but with a much more purposeful and focused approach.  BPO services while strong remain to be driven by buy side interest and not lead by suppliers who fully understand the business processes enough to suggest area of service.  ITO, once a vibrant sourcing area, has been hindered by sub-standard delivery despite software engineering advancements that are highly conducive to outsourcing (such as Agile Engineering and High Yield/Speed Testing).  Finally, the jury is still waiting a verdict on knowledge-based sourcing endeavors (KPO) and remains dominated by a handful of highly qualified suppliers who do in fact understand the high investment necessary to deliver quality results.

It goes without saying that in today’s world, confronted by challenges on social and economic fronts, that sourcing retains high value, but with changes in the way we approach and utilise the service solution.

  • One cannot expect a wholesale sourcing of essential business services.
  • A sourcing decision must take into consideration the social implications while pragmatically examining critical risk areas.
  • Risk areas must be impartially and quantitatively examined, removing all possible prejudicial opinions, and dealing with the facts that are unique to your business enterprise.
  • Looking beyond savings and benefits, using these gains as a source for securing profession unbiased guidance to aid in the transition of your company’s use of external servicing.
  • Commit to a proactive and responsive governance of the sourced service enterprise.  We live in an ever-changing world and one that demands vigilant attention.
  • Retain your unique identity. Your company is not a member of a pack but a member of a unique fraternity. Whatever the motives or the aspiration that exist it is all for the benefit of your business. This unique situation means that outsourcing is a means to fulfill the aspirations of the business and not a self-serving mission.

The World Beyond

Over the last three decades we have made significant strides in outsourcing on a programmatic level. We have developed policies, procedures and practices to take us from those initial steps in the decision-making through to transitioning and operational process. But corners have been cut and conclusions have been reached as to reasons which are not entirely valid.  There is value to be gained but only when we acknowledge that there is a quick way and a right way. To a large extent the responsibility lies on the shoulders of buyers but providers are not without responsibility to provide a climate for safe sourcing. With supply exceeding present levels of demand there is a need for an amplification of value through a consolidation of suppliers. These companies need to self-invest not only at an operational level but also in running these companies as legitimate businesses and not as part-time cottage suppliers. This is not unique to just small tier-three companies but encompasses all sizes of companies, of all types and every sourcing destination. The meteoric growth and low-cost entry has provided much promise and opportunity. It has also created an arena for exploitation ranging from referral brokers to advisors looking to lay prey upon those simply trying to find their way into economic freedom.  Despite these conditions, common to all disciplines, outsourcing is here and its destiny remains in the hands of buyers and suppliers from around the globe.

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