Rules for Outsourcing

Outsourcing IT, call centers, component manufacturing and other business functions is now a way of life. A few simple rules can make the difference between great success and terrible failure.

Some outsourcing has gone well, finding suppliers who provide a quality component or service at a better price, or a better service level. Some outsourcing has gone terribly wrong, leading to loss of data, poor quality of service, or even counterfeit aerospace parts.

Outsourcing is not a panacea. Outsourcing is not easy. Outsourcing something can initially be more difficult than doing it yourself. Outsourcing does not always save money, or time.

One of the people I’ve worked for over the last eight years is a pretty smart guy. Under his leadership we have looked at outsourcing carefully selected IT and QA functions throughout most of that time. Some things have been successfully outsourced, some we’ve decided to keep in-house and we have some new projects where it is too soon to tell. So far, we haven’t had any of the outsourcing failures that seem to be so common.

That’s probably due to the care and careful consideration that he has imposed on all outsourcing decisions.

Here are the outsourcing rules under which we operate:

1.    Strategic Benefit: The benefit must be strategically important to our company, so that outsourcing a function improves time to market for a product, avoids capital expenditure, or takes advantage of another company’s economy-of-scale.

2.    Not a core competency: The function that is outsourced must not be a core competency for our company.  For example, knowing how to manage a data center is a core competency, while actually performing the management with company staff is not a core competency.

3.    Contract: Our company must understand the function to a level of detail sufficient to write a complete management contract that will survive the authors.

4.    Relationship:  There must be a compelling reason for the outsourcing vendor to be a strategic supplier to our company, based either on the size of the contract, partial ownership, market sector dominance, beneficial publicity, or technology leadership.

Connoy, 2005

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