As the liquidators and MP select committee continue to rummage around the wreckage of Carillion, and creditor wait eagerly to what remains of it’s carcass over the coming months and years we have to remind ourselves that outsourcing is not all bad.
It is sometimes said that outsourcing is the solution for lazy management. And I agree.
But, it is also the solution for effective management too.
We have to remember a great strategy for one organisation, is not necessarily the right one for another.
The problem is there is no moral obligation on a supplier to say “you know you could do this better yourself”. A good outsourcing provider should have the expertise to complete things at scale and a higher quality. It should also be that employees get better career progression too – it should be win for everyone. So why isn’t it?
All to often outsourcing is done for entirely for the wrong reasons. If something is outsourced for any of these reasons, it is simply the wrong thing to be doing.
- Getting rid of a problem
- Money saving exercise
- Spreading the cost
I once had a conversation with a commercial manager, they stressed that “things we don’t understand should be outsourced”. I was shocked. On reflection I can see the benefits to them and their career (i.e. a job for life) – but as a business strategy a total disaster waiting to happen. You might you as well write a blank cheque to the supplier.
If you can’t clearly define what you are outsourcing then your shouldn’t be outsourcing it.
Don’t Outsource Inefficient Problems, Fix Them First
If the current activities that are being outsourced are not efficient then one of two things will happen.
- The supplier will simply continue with those inefficient processes and you end up with the same service (and probably charged more as you demand more)
- The supplier makes the service efficient and reaps the financial rewards for the duration of the contract
So before you even think about outsourcing ask yourself three simple questions.
- Do we have activity running as effectively (problem free) as we can right now?
- By outsourcing will be improve then service – scale-ability and quality?
- Is the activity is NOT strategic to the core business activities?
- Is the activity discreet from other activities/business area to enable it to be a service offering?
If you can answer YES to those, then outsourcing might be a good option. If you can’t then think why you are considering it.
Is Capital Next?
Now Capita is fighting for it’s own survival – it’s issue being confidence in the market, that will affect future cash flow as people don’t sign-up to new deals, and let existing contract lapse. The big plays have very tight margins.
Businesses and governments are exiting large outsourced contract, and embracing smaller more agile organisations – by spreading risk of failure it has a smaller impact, and the supplier has to focus on the customer needs more acutely.
Will Capita fail? No, but it will shrink as it updates it’s business model.
Technology Is Already A Commodity Service
Technology is also changing (actually it has). Cloud technology and applications are allowing organisation purchase a commodity end to end. This trend will continue – the decoupling of devices, applications, security and identity management will enable more flexibility.
This will mean outsourcing IT via the backdoor (also the correct door) – but only in the way we don’t produce our own electricity anymore.
It will lead to the end of IT functions as we know them today, and IT leaders will focus on niche technology that adds value and provides IP to their balance sheet.
