The Outsourcing Debate: Are Our Fears Misplaced?
There’s an excellent book by David Ropiek and George Gray called Risk, which explores the perceptions and realities of what we should and shouldn’t worry about. Of course, the overwhelming conclusion is that our fears are misplaced, and we should really worry about our broccoli intake, not snakes, spiders and plane crashes. But we�re human, and snakes, spiders and plane crashes are viscerally more frightening than heart disease.
This got me thinking about the outsourcing debate. The natural instinct is to fear outsourcing. After all, outsourcing is the export of business processes. And if you believe the pundits, this is nothing short of pure evil — the “giant sucking sound” and the wholesale export of jobs. Like snakes, spiders and plane crashes, this is scary stuff.
But should outsourcing be feared?
A recent study by Duke University and Booz Allen Hamilton suggests that while outsourcing of low-end functions leads to a net loss in onshore jobs, higher-end functions actually create onshore jobs. Why? According to Matt Mani, Senior Associate, Booz Allen Hamilton and one of the authors of the report, “This is because high-end jobs are sticky in nature and create value for the customer onshore, which fuels growth and hence creates more jobs.”
This is promising news. While outsourcing is still taking onshore jobs, it’s doing so in decreasing numbers. And there’s a pronounced shift occurring from low- to high-end functions sent offshore which, according to the study, will produce a net gain in domestic jobs. Overall, this is good news for outsourcing and good news for onshore workers.
So where are the real risks with outsourcing? According to the Duke/Booz Allen study, outsourcing high-end functions leads to a loss of managerial control. The primary challenges associated with low-end functions (call centers, for example) surrounded cultural differences and political backlash (remember the giant sucking sound?). With high-end functions, such as software development, the challenges are more tangible — and, in many respects, more addressable.
It’s no wonder that it has taken organizations some time to get used to the idea of sending complex, costly and business-critical processes offshore. Simply put, organizations have better visibility into and more control over business processes within their four walls. While sending high-end functions offshore can yield cost and skill advantages, it does so at a cost: Loss of visibility and managerial control.
“You can’t manage what you can’t measure” is the oft-cited mantra in software development circles. Relatively unstructured and creative processes such as software development have always been a murky territory�in the best of circumstances, the light hasn’t been particularly good for understanding what�s taking place within a software project. This is because software development and other knowledge worker processes are often considered a black art (highly creative, spontaneous crafts that can’t be rushed) or even closely managed.
But the reality is that this laissez-faire model is fraught with risk, particularly when you introduce the physical, temporal, cultural and organizational barriers that accompany offshore development. Without a means for oversight and control, organizations will see a high rate of project failures, resulting in contract cancellations, eroding goodwill, and erasing the promised benefits of outsourcing.
But organizations can mitigate the risks by insisting offshore partners provide consistent and empirical metrics as the vital indicators of the progress and productivity of outsourced processes. Service providers delivering this level of visibility will become trusted partners, profiting from long-term client loyalty and powerful differentiation in the highly competitive outsource marketplace.
Should outsourcing be feared? You be the judge. But in the final analysis, I believe you’ll conclude that outsourcing is proving to be a productive contributor to today’s changing business models. While it shouldn’t inspire fear, outsourcing does introduce some new business risks organizations must be prepared to deal with.
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Karen Smiley ( 2007.22.02 1:05 pm )