Deciding to outsource: Is it cultural?

You may have been expecting this to be about cultural differences in relation to companies that outsource but it's not. Instead, this is about "when" people decide to outsource.

I have noticed that most people involved in outsourcing decisions fall into two groups.

The first group are those who follow roughly the following pattern.

• First, they do some sort of basic research into outsourcing and consider if they think it is something worth considering more seriously for their organization. They may do this on their own, or they may engage an advisory firm such as TPI to help them. This typically involves some financial analysis, change management (eg. sourcing readiness) work as well as strategic thinking regarding service groupings. Any announcements about this work usually center on, "we're investigating our sourcing approach".
  
• If outsourcing as an option looks like it might be worth pursuing after that first step, then they investigate such a management option seriously by engaging with potential service providers to understand in detail what solutions would be for their specific needs. The use of advisory firms is quite common in this situation for all but quite simplistic work scopes in order to reduce risk for the buying organization. The market knowledge and experience an advisory firm brings can be very cheap insurance--typically single digit percentages of the TCV (total contract value). Any announcements for this stage usually center on, "we're engaging with the market to better understand the value proposition that companies can offer our firm".
  
• Finally, if the service provider proposals received in that second step meet the buyers criteria (these criteria vary by buyer), then they decide they will outsource and they then pursue finalisation of the arrangements, transition, staff transfer if relevant and prepare for ongoing management of the outsourced relationship. This stage almost always involves both sourcing advisors and legal counsel. Any announcements for this stage usually center on, "we've decided to outsource".
  
  While the above may seem normal and reasonable, there is a second group of people who, at least emotionally, try to combine the second and third step above. They may go through the same set of actions but they consider that the start of step two is actually a decision to outsource, rather than to seriously investigate if outsourcing will really be of value. This group is more commonly found in Asian companies, Japan and Korea in particular, as well as companies with a very domineering CEO who decides first and gets his/her team to simply execute. Often, there is a belief that the initial investigation in step one did, or at least should have, yielded sufficient insight into the ultimate path forward and that can drive this emotional reaction.
  
  Does it really matter which group you're in? I would argue that it is crucial if you're considering outsourcing for anything that is not a standard commodity-like service. If you are considering a more complex set of services, especially those for IT, HR (beyond payroll processing), finance and accounting, procurement etc or services that span multiple geographies or business units, being in the second group can create a significant problem.
  
  What happens if the solutions offered to you are worse than internal improvement approaches (eg. consolidation, standardization, business process re-engineering, etc)? If you've already emotionally committed to outsourcing and communicated that to people, how do you "back down" and adopt a different approach?
  
  Prudence suggests that staying in the first group and not pre-committing to a particular course of action prematurely is a wise choice.
  
  To which group do you, your team, your management belong?
  
  
  
  
  
  Disclaimer:
  Views and opinions expressed in this blog are the author's, and do not necessarily represent those of ZDNet Asia.
  
  

  Tags: TPI, Technology Partners International, BPR, financial analysis, sourcing advisor, strategic thinking, Prudence, Outsource, outsourcing, service provider

  
  

  To add tags, you need to become a member. It's FREE.

  Log in or sign up now!

  Cancel

  • Talkback
  • Print
  • E-mail
  • Share
  • Alerts
  Slashdot

  Digg

  Facebook

  Twitter

  Delicious

  reddit

  Google

  StumbleUpon

  close this
  

  Talkback 0 comments

  There are currently no comments for this post.

  • Reply to story

• Are telcos new drivers of outsourcing industry?
• Deciding to outsource: Is it cultural?
• Outsourced or not, demand must be managed
• Competition heats up for outsourcing industry
• What do we mean by 'outsourcing'?

• Have we started to turn the corner?
• Outsourcing and value for money improvement--incompatible?
• Who cares about sourcing?
• BPO, the unfulfilled promise
• What do we mean by 'outsourcing'?

2009

2008

2007

2006

• Don't CC me, I'll CC you
• M'sian broadband wars heat up
• Where have all the bosses gone?
• NUS Enterprise: An 'incubator without walls'
• Will there be too many chefs cooking India's UID broth?

Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.