Are Costs Savings The Holy Grail Of Outsourcing?


Whether your goal is re-engineering or outsourcing, somewhere along the line you’ve run into the term Transformation. Your organization may have been exposed to the idea of transforming your organization from contact with a consulting firm or members of your firm may have heard of transformation from a panel discussion at an industry conference.
Maybe an executive read about it in a magazine. However you came into contact with this idea, it has become the holy grail for many firms, and many service managers have been given the task of making transformation happen. Like most mythical quests, there are numerous stories about those who started this elusive quest, but there are few credible reports of anyone actually completing the quest and discovering the formula for transformation. Like the grail itself, the teams that have started out on this quest have provided conflicting stories about their quests, what they discovered and even what our elusive grail looks like. Is transformation just  a myth? Does true transformation really exist? Will it take Indiana Jones to find our transformational grail? it? For the answers to these and other questions, read on!

The reasons why this quest is often unsuccessful may be found in a recent article from Horses for Sources, a journal of outsourcing information so thelps you to find, “the right horse for your particular course.” They recently published the result of a survey that found that outsourcing tends to achive cost savings fare more often than than “higher level” goals such as transformation. For many of you, this may not be much of a shock. Many firms start off with very high aspirations, often as part of a larger effort to re-invent or re-invigorate their business. Yet, while the initial goals are very lofty, transformation is often forgotten and replaced by the simpler more easily measured goal of simple cost arbitrage, by moving to a lower cost location. This survey confirm this: 46% of outsorcing buyers responded that outsourcing was very effective at reducing costs. But, only 26% responded that transformation was very effective and just 11% responded that they achieved “innovation” goals. Let’s take a closer look at these numbers.

The first number, 46% very satisfied with savings, is a very profound number. It is not a coincidence that it matches some other numbers. For years McKinsey and Gartner have been publishing studies that say only 50% of outsourcing projects succeed. Likewise, there are similar reports from the world of project management, especially from the world of Six Sigma, that tell us that only half of the improvement projects are completed or completed successfully. While it might be less than scientifically rigorous, we can tie together these different, but related, pieces of information. Outsourcing, Six Sigma, Lean, Kaizen and other project based efforts fail frequently, but each involve different types of projects or different methodologies to identify or to manage projects. Therefore, the primary theme that ties togetehr these failures is that they each involve projects. Project are special, limited time, efforts outside of the normal course of business. Granted, there are project managers and consultants whose only job is to manage projects, but projects require teams and most of the team members have other jobs that continue after the project is over.

We all go into a new project with at least a degree of optimism, some belief that the project will suced (or the project wouldn’t get off the ground). As the project proceeds, we run into obstacles. Issues of all sizes that drain away the benefits of the project, and blunt our enthusiasm. Meanwhile, new projects and new priorities arrive all the time. It’s hard to keep your eyes on that project while new projects constantly arrive.  A large improvement project might take a year or more, and a large outsourcing project might take 3 or more years. Even if you are assigned to a project full time, it’s difficult not to get side tracked. If you are a senior executive who follows the project because of a very narrow interest, or because you are ensuring that the project has no negative consequences for your other interests, you can be easily distracted or may drop  out before the end of the project. Keeping executives focused on your project for months or years is… unlikely. There are exceptions, but we are all subject to human limitations, and maintaining a single focus for that long is a very difficult task for 99% of humanity. So, time is an issue. If we aligned cost, transformation and innovation on a timeline… cost (lowering cost) appears first and is achieved the earliest, and can be projected more reliably than other goals. Transformation (dramatically improving work) would occur next, and innovation (becoming the world’s best, industry’s best, or a similar benchmark) is the most difficult goal, and requires achieving some cost and transformation goal first. So, your full team along with their political and economic support is there at the cost stage. By transformation, a lot have dropped off. And by innovation, you have the fewest fully engaged supporters.

Does this mean that transformation and innovation are impossible,  or that these goals are too difficult to achieve? Not at all! What it does mean is that cost, transformation and
innovation are successive goals. You need to achieve the first goal before you get the second, and the second before the third. It takes considerable time… perhaps years.. between the first signs of cost savings and the first signs of innovation. You need to set up a timeline to understand when these milestones will occur, and then set your expectations accordingly.  And that’s my Niccolls worth for today!

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This entry was posted in Best Practices, Delivering Services, Improvement, Continuous or Not, Uncategorized and tagged , , , , , , . Bookmark the permalink.

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