Opinion: Overcoming the quick-fix appeal of outsourcing

Executives must play role in setting strategy, monitoring results

Leslie P. Willcocks, Sara Cullen, and Andrew Craig, The Outsourcing Enterprise: From Cost Management to Collaborative Innovation. Palgrave Macmillan, 2011.

I am often asked to recommend business books. Recently, I have had several people ask me for books on outsourcing. These requests were usually preceded by stories of an unpleasant experience in this area.

Today, the outsourcing of business and IT services is a global industry estimated to be worth about US$450 billion. It now consumes a large and growing proportion of expenditures in both business and government. Yet, organizations often struggle to get it right.

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What seems to be the problem? From my conversations with some of the executives asking for book recommendations, it appears that many were looking for outsourcing to provide a quick fix. They selected suppliers haphazardly, and pretty much left the deals to manage themselves. Most admitted that, in retrospect, they paid too little attention to the capabilities required to manage the contract or creating a governance structure to monitor and ensure their objectives were being met.

I have been searching for a book on outsourcing that I could recommend to them. In particular, one that provides clear and practical guidance for executives based on the extensive body of good academic research that exists on this topic. Too many of the books I have seen in this area contain lots of prescription, with little by way of an evidentiary foundation.

I was pleased then to come across a new book with Leslie Willcocks as its lead author. Mr. Willcocks, the director of the outsourcing research unit at the London School of Economics, is widely considered to be one of the world’s foremost authorities on outsourcing. He is joined in the production of this volume by two co-authors with substantial research and consulting experience in the areas of IT and business process outsourcing.

The Outsourcing Enterprise distils the key lessons from the comprehensive longitudinal case research that the authors have carried out over the last 20 years on 1,600 outsourcing arrangements. These are drawn from a variety of industry and government sectors and cover both large and small organizations. Their research provides unique insights into what does and does not work, and the strategies, capabilities and processes required for successful outsourcing results.

My only criticism is that despite the authors’ contention that the book was written for executives, the prose can be heavily academic and this sometimes masks the valuable insights and advice that it contains.

The first four chapters provide a very good discussion of the management foundations and practices that underpin an effective outsourcing strategy.

In particular, the authors stress the important role that senior executives need to play in setting the outsourcing strategy, creating capabilities, establishing management processes and applying effective monitoring and evaluation procedures.

This section also includes a very good set of tools to help organizations effectively make outsourcing decisions, including choosing the right suppliers and identifying the competencies that need to be retained in-house in order to maintain control and ensure the ability to respond to changing business conditions.

The authors’ research shows that outsourcing is most successful if it is viewed as a strategy with a life cycle, rather than a one-off transaction. To support this view they provide an extremely helpful chart of what they call the “outsourcing life cycle,” containing four phases, nine building blocks and the 54 key activities that need to take place over the life of an outsourcing deal. This is an extremely useful blueprint for any organization looking at outsourcing opportunities.

One of the later chapters, which provides the basis for the book’s subtitle, looks at the evolution of outsourcing from contract administration to the situation today, where organizations are increasingly looking to collaborate with suppliers to create new business practices and identify new ideas and opportunities. This requires a different style of management and deeper, more trust-based relationships than those that existed in earlier types of deals.

Later parts of the book also contain a particularly good discussion of the application of a balanced scorecard to outsourcing arrangements, and provide examples of the metrics and dashboards that can be used to track performance.

This book is almost encyclopedic in the insights and advice that it offers on outsourcing, and will help you rapidly move up the learning curve.

Micheal Kelly is a professor and former dean at the University of Ottawa’s Telfer School of Management.

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