The last American election “exposed” outsourcing as an evil, and in part, a reason one presidential candidate defeated another. The belief is that outsourcing – foreign or domestic – helps to optimize a business function. I heard this argument for the hundredth times on the Washington Times Communities website in an article titled, Outsourcing vs. Offshoring.
It is the wrong thinking.
However, organizations continue to perpetuate the “optimize each function thinking” as blindly acceptable. Sub-optimization results on a large scale. Locking in waste for short-term profit games has become a national pastime in the US. It is hard to find organizations that don’t lick their chops when they see the reduced costs in the form of lower wages in outsourcing.
Political and consumer backlash seems to be bringing back the jobs . . . and again for the wrong reasons. The problems with outsourcing go beyond politics. This is not to say that consumers should be ignored as they decide what organizations to place their business with.
The deciding factors need to connect with the waste service organizations are outsourcing. When the design of the work prevents customers from getting their demands satisfied – we get failure demand. When phone calls run 40, 60, 80% and higher of these types of demands -which I find in almost every organization – why would you outsource this much waste? It is more prudent to redesign the work. Service organizations that outsource this much waste are locking in costs, not reducing them.
So few organizations know what to measure that reduces costs and the result is managing by costs alone. The result is always increased costs.
Before the next onshoring craze let’s address the problems first . . . the right ones.
Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public). His organization helps executives find a better way to make the work work. Read his articles at Quality Digest and his column for CustomermanagementIQ.com. Learn more about the The 95 Method for service organizations. Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.
Share This:
Tripp,
In the event that you are not familiar with his theories, I would like to add another perspective, that of competition and competitive advantage, to this controversy.
According to Michael Porter, one of the preeminent researchers in the field whose frameworks are the foundation for modern thinking about competition and strategy, most people tend to think about competition as a form of warfare, a zero-sum battle for dominance in which only the strongest prevail. In Mr. Porter’s view, this is a deeply flawed and destructive way of thinking. Instead of competing ‘to be the best,’ competition should be to ‘be unique.’ It is about uniqueness in the value you create and how you create it. Zero-sum competition is rightly depicted as a race to the bottom. It feeds on imitation. Pure cost advantages such as lower labor costs are relatively easy to imitate. In contrast, competing to be unique thrives on innovation and in the long run demands sustained and cumulative investment in sources of competitive advantage associated with more complex production.
This is merely the one of the many implications Mr. Porter’s concepts have toward organizing business processes, most if not all of which are compatible with and indeed support your views on optimizing business organization.
1. “Understanding Michael Porter – The Essential Guide to Competition and Strategy,” by Joan Magretta, HBR Press, 2012.
2. “The Competitive Advantage of Nations,” by Michael E. Porter, The Free Press, 1990, 1998.