Does outsourcing always work?

Outsourcing doesn’t always work. That may seem obvious to critics of outsourcing, but it is sometimes harder for those of us in the industry to admit.

But lets think for a moment about why that might happen. In the National Outsourcing Association annual yearbook for 2013, Roger Martin Fagg, a visiting fellow at Henley and Ashridge Business Schools, and former advisor to the Bank of England said: “Outsourcing has a positive effect on the macroeconomic environment if the outsourcing taking place increases both the efficiency and the effectiveness of the business. You have to have the two for it to be a worthwhile activity. If you’ve only got one, then you haven’t got a sustained position.”

Outsourcing needs to drive both efficiency and effectiveness to work. That’s important to remember because the companies who slashed costs using outsourcing, but found that it made their processes less effective, or worse, quickly found that you can’t just outsourcing for efficiency alone.

Working with a partner to deliver some of your services might be cheaper or more expensive – that doesn’t matter – but the service itself must be at least as good as it is today and preferably your expert partner will make your business work better.

Further to his comments about effectiveness, Roger Martin Fagg said: “Companies must be absolutely clear on what I call their value chain, and the value chain is – particularly in a service company – where the moments of truth happen. Take an insurance company, you only know it’s a good company when you have to make a claim, and if the procedure that the individual has to go through to make that claim is long and torturous because it’s been outsourced to a number of subcontractors, generally speaking that company has lost a customer for life. I’ve experienced that. There are plenty of examples out there where outsourcing has not increased effectiveness, it’s reduced it.”

This moment of truth is critical when customers are involved and Teleperformance is usually involved in outsourced customer services. We make customer service work better for our clients – if we did not do that then they would not keep coming to us for advice on how to keep on improving.

It’s true. Outsourcing doesn’t always work, but it is not outsourcing as a strategy that does not work, it is the managers who fail to see that this is a business strategy that is about far more than just cutting cost.

Henley Business School [HDR]

 

Photo by Russell Ede licensed under Creative Commons

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