I can understand why this is happening – “Plan A didn’t work, so let’s try this outsourcing thing a little differently.” And it’s also an opportunity to question one of the common “rules” of outsourcing – that companies should only ever outsource things that are working well.
I think we should question this assumption.
Where does this assumption come from?Traditional wisdom seems to be that we should only outsource things that are stable and working well, but what about the stuff that we’re doing badly?
Many support the view that we shouldn’t outsource something that is “broken” – because it means that we don’t understand it well enough, and therefore can’t adequately specify our requirements to the new service provider.
With a background on both sides of the managed services and outsourcing relationship, and with some of our current customers being managed service providers and others their customers, I think it’s worth challenging this conventional wisdom.
Using our personal lives as an analogyIn our daily lives, we’re constantly buying services because we can’t do them well ourselves.
When I was a teenager I serviced my own car a few times, but I’m not very good at it, so I made a conscious decision to get someone else to do it for me. I understand enough about the end objective (a fully-functional vehicle), and can express any symptoms of potential issues, to be able to express my requirements and engage a service provider, i.e. a car-servicing center.
Generally speaking, while we sometimes engage others to do the things we’re good at, when we don’t have the bandwidth or desire to do it ourselves, we also seek the help of a service provider when we need something that we can’t do.
Why should it be different in the IT world?If we have something that we’re currently doing badly and maybe have no hope of being able to fix, maybe the service we’re looking to procure from a service provider is to take it on, help fix it, and provide it as on-going service.
If we don’t have the skills or bandwidth to fix it internally, it’s probably not a core competency, and is therefore something we might legitimately want to buy from a supplier instead of delivering it internally.
We have a choice, just the same as with my car maintenance.
What about fixing things before outsourcing?If we agree with the conventional wisdom, one option is to bring in outside support, maybe from consultants or contractors. They fix it, and get it stable, so that we can then outsource it.
This does work well in many cases, but it also runs the risk of being inefficient. What happens if the service provider’s preferred way of delivering this service is different from our internal approach? Potentially the service provider has to deliver something slightly unique, perhaps missing economies of scale, which in turn might mean we don’t get the best price. It’s also likely to increase the risk, as the service provider is doing something new, non-standard, and therefore represents a greater risk to the service quality and continuity.
Once we agree an outsourcing deal, the service provider may want to transform it in order to fit their standard service – which means we’re probably paying for it to be transformed twice, once by the consultants and then by the service provider. We may also compromise the scope for innovation from the service provider – which in my mind is one of the characteristics that we should be encouraging when we look for potential suppliers.
Instead, outsource as isI would suggest that we should consider outsourcing any activities that we’ve decided are not going to be core competencies of our organizations – regardless of whether we currently do them well or not.
One of the common mistakes in outsourcing is that customers try to specify exactly how to provide the service (often to make the procurement process easier), destroying some of the potential economies of scale available from the supplier being able to deliver it in a standardized way (which is key to them being able to deliver it cheaper) and leaving virtually no room for any innovation.
If we’ve forced them down to a very low margin, they’re likely to be under internal pressure to realize that profit in other ways. Supplier relationships always work best if they’re equitable – we have to recognize that the service provider needs to make money, and we also want them to be incentivized to continue increasing their value, introducing new innovation and improvement ideas.
If the starting point is something that already fits, or can be easily molded to, their existing processes and service characteristics, they can start concentrating on the innovations much earlier – even if that something is currently “broken.”