I have had a lot of mini-battles over this stance (99% from vendors that profit from outsourcing) and I am sure I am going to have more.  We need to have this discussion, it supports better thinking than the assumption that outsourcing always saves money.

Let’s begin with a look at the common thinking . . . command and control thinking.  This thinking is based on scientific management theory born from Frederick Winslow Taylor.  This thinking called for the functional separation of work.  Government and businesses have broken the work down into pieces like sales, sales support, front office operations, middle office operations, back office operations, technology, call center . . . you get the idea and probably live it.  Someone came along and said, “hey, we get 5,000 calls in the call center and it costs $20 per call.  But if we ship this to a foreign country with cheaper labor, it will cost us $8 per call.  No brainer, we can reduce our transaction cost.”   The fundamental problem with this production mentality is that we focus on reducing the costs of the transactions rather than reducing the number of transactions.  Better thinking is coming to the realization that call centers carry waste typically between 25% and 75%, this waste we will reference as failure demand (for example, failure to: show for an appointment, call back, meet customer expectations, not solve a problem, send out an application, etc).  These failure demand phone calls instead of being eliminated are outsourced.  And usually I see increases in failure demand after outsourcing because the outsourced call center winds up creating its own failure demand (one bad phone call that leads to many).  Elimination of failure demand usually requires redesign of the work and help from the people you are trying to outsource.  But elimination of failure demand both decreases costs and increases customer satisfaction, so why outsource the waste?

One of the arguments that I hear in favor of outsourcing is “we are specialists in this area and you are not, so you need to outsource.”  Maybe, but by optimizing a piece do we optimize the whole, the answer is no and in many cases it sub-optimizes the business.  The failure of organizations to look at their organization as a system can be very costly no matter what the function being outsourced.

The one argument I hear most from outsourcing vendors is that my expectation for organizations is unreasonable . . . no company is perfect.  Does this really make it OK to outsource waste?  I can hear the company motto now, “our waste does not cost you as much.”  There is a certain acceptance of waste and inefficiency, that to you, should be intolerable.  This doesn’t matter whether you are in private sector or government management.

My work is to help you understand your organizations as systems and that better thinking exists to manage your service companies be they private or public or even the service side of manufacturing.  A systems thinking organization has a huge advantage over the command and control thinker.  So before outsourcing or if you are outsourcing, I urge you to take a hard look at your system . . . the customer demands (value and failure), purpose, work design, flow and value.  If you can’t see the waste in your system, let me know, I’ll be glad to show you.

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.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.