When we outsource internal processes, we create risk. It's no surprise that the risk created varies with the kind of services outsourced. For instance, outsourcing cubicle maintenance creates risks that differ from those created by outsourcing IT, software testing, or product development. When the risks of outsourcing create threats to the enterprise, we mitigate them — if we fully appreciate the risks.
Since some risks associated with outsourcing are inherent to outsourcing, many decision makers haven't encountered them before. Some of these risks are intuitively clear, or have been widely discussed. For example, outsourcing a customer relationship software maintenance task entails some risk of exposure of proprietary information.
But there are other outsourcing risks that are a little less obvious. In the descriptions below, "customer" refers to the organization that decided to outsource some activity, and "vendor" refers to the organization that carries out the outsourced activity.
Part II explores risks associated with the evolution of the processes that are outsourced. In this Part I, I describe risks related to the migration of knowledge to the customers' competitors.
- Knowledge of the outsourcing process
- Knowledge of and experience with the process of outsourcing itself is a customer asset. An example of valuable knowledge: contractual artifacts for managing outsourcing risk. As the customer engages with a vendor, it inevitably transfers that knowledge to the vendor, and from there, the knowledge can migrate to competitors of either party.
- Customers can mitigate this risk by taking care not to reveal intentions during the initial negotiation. Vendors who understand this customer concern can gain trust and loyalty by promising to treat — and then actually treating — contractual terms as if they were the intellectual property of the customer. Often, in effect, they are.
- Improving competitors' processes
- Outsourcing elements Outsourcing elements of internal
processes inevitably transfers
internal knowledge to the vendorof internal processes inevitably transfers internal knowledge to the vendor. When the customer outsources, the vendor necessarily acquires knowledge that previously had been internal to the customer. For instance, the customer might have developed an automated tool for transferring data from one commercial customer relationship management system to another — a tool that isn't available commercially. That knowledge might then propagate to arrangements between the vendor and other customers. Nor is such propagation limited to that one vendor, because its employees carry that knowledge with them when they move to other vendors.
- Vendors who accept business only from selected customers who do not compete with each other provide some mitigation of this risk. Customers can mitigate this risk by favoring vendors who don't serve competitors.
The significance of any risk related to outsourcing depends upon the importance of the outsourced process in differentiating the customers' offerings from the offerings of competitors. The more significant a differentiator the outsourced process is, the greater the risk incurred by outsourcing it. Next in this series Top Next Issue
Are your projects always (or almost always) late and over budget? Are your project teams plagued by turnover, burnout, and high defect rates? Turn your culture around. Read 52 Tips for Leaders of Project-Oriented Organizations, filled with tips and techniques for organizational leaders. Order Now!
Your comments are welcomeWould you like to see your comments posted here? rbrenmhXARWRMUvVyOdHlner@ChacxgDmtwOKrxnripPCoCanyon.comSend me your comments by email, or by Web form.
About Point Lookout
Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.
Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.
Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.
More articles on Personal, Team, and Organizational Effectiveness:
- Take Regular Temperature Readings
- Team interactions are unimaginably complex. To avoid misunderstandings, offenses, omissions, and mistaken
suppositions, teams need open communications. But no one has a full picture of everything that's happening.
The Temperature Reading is a tool for surfacing hidden and invisible information, puzzles, appreciations,
frustrations, and feelings.
- Asking Brilliant Questions
- Your team is fortunate if you have even one teammate who regularly asks the questions that immediately
halt discussions and save months of wasted effort. But even if you don't have someone like that, everyone
can learn how to generate brilliant questions more often. Here's how.
- The prevalence of overwork has increased with the depth of the global recession, in part because employers
are demanding more, and in part because many must now work longer hours to make ends a little closer
to meeting. Overwork is dangerous. Here are some suggestions for dealing with it.
- Preventing Sidebars
- Sidebar conversations between meeting participants waste time and reduce meeting effectiveness. How
can we prevent them?
- Heart with Mind
- We say people have "heart" when they continue to pursue a goal despite obstacles that would
discourage almost everyone. We say that people are stubborn when they continue to pursue a goal that
we regard as unachievable. What are our choices when achieving the goal is difficult?
See also Personal, Team, and Organizational Effectiveness for more related articles.
Forthcoming issues of Point Lookout
- Coming July 3: Appearance Antipatterns: II
- When we make decisions based on appearance we risk making errors. We create hostile work environments, disappoint our customers, and create inefficient processes. Maintaining congruence between the appearance and the substance of things can help. Available here and by RSS on July 3.
- And on July 10: Barriers to Accepting Truth: I
- In workplace debates, a widely used strategy involves informing the group of facts or truths of which some participants seem to be unaware. Often, this strategy is ineffective for reasons unrelated to the credibility of the person offering the information. Why does this happen? Available here and by RSS on July 10.
I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenmhXARWRMUvVyOdHlner@ChacxgDmtwOKrxnripPCoCanyon.com or (650) 787-6475, or toll-free in the continental US at (866) 378-5470.
Get the ebook!
Past issues of Point Lookout are available in six ebooks:
- Get 2001-2 in Geese Don't Land on Twigs (PDF, USD 11.95)
- Get 2003-4 in Why Dogs Wag (PDF, USD 11.95)
- Get 2005-6 in Loopy Things We Do (PDF, USD 11.95)
- Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, USD 11.95)
- Get 2009-10 in The Questions Not Asked (PDF, USD 11.95)
- Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, USD 28.99)
Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500 words in your inbox in one hour. License any article from this Web site. More info
- The Power Affect: How We Express Our Personal Power
- Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.