* Company execs have a "Doh!" moment
If you watch the television show “The Simpsons,” you’ll recognize the following as a “Doh!” moment. The results of a recent outsourcing study by Deloitte Consulting show that company execs now realize they spent a lot of money for very negative returns.
The consulting company surveyed 25 large organizations with a combined total of $50 billion in outsourced contracts. Here are some of the findings:
* 70% of respondents had negative experiences with outsourcing projects.
* 25% have brought outsourced activities back in house.
* Almost 50% failed to realize the cost savings they thought they would gain through outsourcing.
In a story by NetworkWorld.com (link below), Deloitte Senior Strategy Principle Ken Landis, offered this insight: “When revenue was down [outsourcing] made a lot of sense and it was a perfect tool for publicly held companies to manage their earnings. But in a growth environment, the questions of complexity and friction, the difficulty in relating cultures between two firms and a lot of other questions come to the fore.
“Cost is still absolutely critical, but firms tend to switch from being cost-focused to growth-focused as the economy grows,” he says. “What they’re finding is that in growth mode outsourcing makes them arthritic, slow to respond.”
The salient sentence – the primary takeaway – for those considering outsourcing today, specifically offshoring, is the last one. When companies are growing, thanks to a robust economy, outsourcing isn’t a viable option because you can’t pivot quickly enough. You and your associates have to get on a jet, fly to your offshoring location and meet with people that have cultural and language differences in order to affect corporate change. There are plenty of Harvard Business Review case studies available showing that even though executives think they can get it done, they can’t. A friend of mine explains it this way: “You’re put on ignore.”
I like Landis’ use of the word “arthritic” here, because it connotes exactly what’s wrong. The arm bones and hips want to run, but the legs won’t allow it. They’re sending pain signals up the line. With arthritis, you’ve got to treat the problem as soon as possible or you won’t be able to function. With companies that have offshored their operations, but are still saying they’re 100% American (or British or whatever) companies, this same kind of affect can set in.
There’s a difference with companies that truly see themselves as multi-national. I recently wrote about Dell expanding its Indian outsourcing efforts. But it has legitimate reasons. Dell sees 55% of its business in the next few years as deriving from non-U.S. sources. This is the key differentiator.
One time I read a “Motley Fools” newspaper column on stock-market investing in which the author asked this germane question: Are you an investor or a speculator? The question is basically the same for companies considering outsourcing: Are you doing this because you have multi-national clientele or because you think you’ll save money? If it’s the latter, chances are you won’t.
Thoughts? Please mail me at: mailto:bheldman@emausa.com
