A bad rap for outsourcing?

I'd have thought that by now outsourcing would be about as controversial as sending your suit to the dry cleaners, but this hasn’t prevented a rash of articles with headlines like "the folly" or “the perils” of outsourcing.

Take Steven Downes, business editor of the Times: “Outsourcing has become something of a dirty word…especially among…anyone who has tried to use the services of an outsourced call centre. Choruses of "I told you so" were also heard…when news agency Reuters moved one of its departments to India, and someone there pressed the wrong button at the wrong time.”

Comments like this make me suspect that there’s a lot of racism fuelling this debate. British people clearly react against certain accents on the phone--I doubt they even consider that the nice Scottish and Irish people at their favorite bank may themselves be outsourced. And, frankly, what do you expect when you entrust someone with dark skin with a complex technical operation like button-pushing?

Take this unpleasant undertone away and you’re left with the fear of the new. If you’re mugged in the street, well, it’s a tough world. If your online bank account is “phished”, it’s the Internet’s fault. We should never have changed the existing order of things; we have brought destruction on our own heads by meddling.

According to the Guardian’s Polly Toynbee, for example, the Gourmet Gate story should become “a business-school exemplar on how the subcontracting culture can bring down a company.” BA is doomed apparently, because it has “trash[ed] its good name…by contracting out a service that is vital to its marketing success” (In-flight catering? Really? I’d rather bring sandwiches…).

The blame, of course is with the consultants who advise clients to toy with the madness that is subcontracting. The normally quite sensible Simon Caulkin recently wrote in the Observer that “with management everything conventionally regarded as good is actually toxic.” Who was telling us otherwise: “a whole ecology of improvers - consultants, IT vendors, outsourcers and peddlers of tools of all descriptions.”

With no apparent sense of irony, Caulkin referred to recent study by “improvers” Deloitte Consulting, which suggested that outsourcing often disappointed. Since this survey has become embedded in the mythology that Outsourcing Doesn’t Work, it’s worth revisiting its headline conclusions: 70 per cent of respondents have had “significant negative experiences” (rather than utter disaster) with some of their outsourcing deals, and a mere one in four were bringing services back in-house. Not the end of outsourcing then, which must have come as some relief to Deloitte, named top outsourcer by Information Week last year.

All this is rather odd because The Gourmet Gate affair—I suppose we should call it GateGate—isn’t really about outsourcing. It is an object lesson in not bankrupting your suppliers, whoever they are. BA used its power as the sole purchaser of Gourmet Gate’s services to drive costs down beyond Gourmet Gate’s ability to respond—principally because of the TUPE undertakings covering the staff it took on from BA. It’s hard to see how keeping catering in-house could have squared that circle.

If commentators want to know what’s really going on with outsourcing, they should look at the lifecycle of any fashion, business or otherwise.

“Early adopters”, whether of outsourcing or the mini skirt, get significant benefits either in profits or popularity. As others follow suit, the competitive advantage erodes and people who frankly shouldn’t have been seen dead in that style start appearing on the street. And then the world moves on.

Similarly with outsourcing—a lot of the low-hanging fruit has gone, and companies have to work harder to gain significant advantage. Worse, because a lot of those early success stories were “no-brainers”, outsourcing gained appeal for those managers who are more comfortable when not using their brains. A badly thought-through decision is a badly thought-through decision, whether it’s outsourcing your call centre or buying a safari suit.

As outsourcing becomes more widespread and mature, and the competitive landscape changes, we should expect some bad or disappointing experiences. We should also expect services to occasionally come back in-house, and the best outsourcing contracts now explicitly recognize this fact. We should expect more sophisticated models—shared services is making a major comeback, as companies try to get the best of both worlds. And we should hope that the armchair pundits would move on to something else.