Outsourcing is often confused with procurement or purchasing, because many of the same drivers influence these strategic decisions. Both involve efficiency planning, cost reduction, comparing the price of various suppliers. It’s easy to see how the two disciplines get confused. But they are very different.
If you are procuring post-it notes from another firm, you agree on the price, quality, and amount of items, then you procure them. That’s the end of the relationship, except for those annoying stationery catalogues that will be sent for evermore.
If you are outsourcing a business process your company presently performs to a supplier then you are effectively lifting up the boundary wall of your company and rebuilding it around the supplier. Yes, they are still a supplier and are just contracted to provide a service, but to all intents and purposes they become a part of your supply chain, and therefore, an integral part of the service you offer to your own customers.
The oil spill caused by a BP rig explosion a couple of years ago off the southern coast of the USA is a textbook example. Several contractors were involved in the errors that led to the explosion and subsequent disaster, but as far as the media and politicians were concerned it was BP’s mess.
BP could have turned around and blamed the contractors they had working in the area at the time of the explosion, but would anyone have listened? When a firm contracts another to deliver a service there is an operational transfer of responsibility for delivering that service, but the accountability for making sure it works is not transferred from the client to supplier.
The buck stops with the client. Even if they paid a supplier to deliver a service, it doesn’t mean they can blame the supplier when it goes wrong. This is an important point to remember if you are considering the use of outsourcing as a way of sorting out a messy or disorganised business function. The supplier might sell their services as ‘your mess for less’, but the mistakes will still be your problem when they occur – both in terms of actual liability and reputation.
Photo by Joe Dykes licensed under Creative Commons