Mitigating Outsourcing Risks: II

Last time ("Mitigating Outsourcing Risks: I," Point Lookout for April 15, 2009) we explored outsourcing risks associated with knowledge migration. In this Part II, we examine risks associated with the processes we outsource. As in Part I, the term "customer" refers to the organization that decided to outsource something, and "vendor" refers to the organization that carries out the outsourced activity.

Here are three risks associated with the processes we outsource.

Process stiffening

Outsourcing agreements typically include assumptions about the nature of the outsourced processes. These assumptions can vary widely — they might pertain to the frequency of changes in requirements, or to the requirements themselves, or to how well documented the processes are. Changes to these assumptions usually entail negotiation with the vendor. Sometimes those changes go beyond the scope of the contract, which makes the negotiations challenging. In effect, these sometimes-hidden assumptions can stiffen the processes that are outsourced. In dynamic organizations, process stiffness is a liability.

Vendors and customers who can make assumptions explicit during initial contracting will be able to devise more flexible and durable contract arrangements.

Wagging the dog

Occasionally the vendor wants a change that the customer didn't request. For instance, the vendor might want to cease support of an operating system or operating system version. Usually, continued support is available at a higher price, but that might not make economic sense to the customer. In this way, vendor priorities can become customer priorities, whether the customer likes it or not. The tail wags the dog.

Contracts that address this issue are more durable. They permit both parties to plan for change from the beginning of their collaboration.

Insulation from improvements and economies

Once a process is outsourced, the vendor might have an incentive to improve it. If lower-cost methods for producing the required deliverables are consistent Intent on maximizing short-term
expense reductions, many customers
lay off those who might have
understood the vendor's improvementswith the contract, the vendor might be able to retain all or some of the resulting savings. Often, the vendor is not even obliged to transfer knowledge of the improvements to the customer. Even when knowledge transfer occurs, many customers might no longer have employees who can understand what is transferred. In effect, the customer is insulated from process improvements and cannot benefit from them. When the customer moves to a new vendor, those improvements are often lost.

Customers who retain employees who are fully capable of understanding the details of the activities that were outsourced, and who are allocated to supporting the outsourcing relationship, have a better chance of capturing any process improvements the vendors produce. Intent on maximizing short-term expense reductions, many customers are unwilling to maintain such staff. But even those customers who do maintain an internal capability must rely on the willingness of their vendors to disclose any such improvements.

When modeling the economics of a decision to outsource, these risks are important. Including them in your decision process will produce higher-quality results.   First issue 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 welcome

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.

This article in its entirety was written by a human being. No machine intelligence was involved in any way.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

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.

Related articles

More articles on Workplace Politics:

Dealing with Negative Progress

Many project emergencies are actually the result of setbacks — negative progress. Sometimes these mishaps are unavoidable, but often they're the result of patterns of organizational culture. How can we reduce the incidence of setbacks?

Stalking the Elephant in the Room: I

The expression "the elephant in the room" describes the thought that most of us are thinking, and none of us dare discuss. Usually, we believe that in avoidance lies personal safety. But free-ranging elephants present intolerable risks to both the organization and its people.

More Things I've Learned Along the Way

Some entries from my personal collection of useful insights.

Narcissistic Behavior at Work: V

When someone at work exhibits narcissistic behavior, others respond. Some respond by accommodating the behavior, and those accommodations can include special and favorable treatment of the person behaving narcissistically. That's one place where trouble can begin.

Fractures in Virtual Teams

Virtual teams — teams not co-located — do sometimes encounter difficulties maintaining unity of direction, or even unity of purpose. When they fracture, they do so in particular ways. Bone fractures provide a metaphor useful for guiding interventions.

See also Workplace Politics and Workplace Politics for more related articles.

Forthcoming issues of Point Lookout

Coming February 26: Devious Political Tactics: Bad Decisions

When workplace politics influences the exchanges that lead to important organizational decisions, we sometimes make decisions for reasons other than the best interests of the organization. Recognizing these tactics can limit the risk of bad decisions. Available here and by RSS on February 26.

And on March 5: On Begging the Question

Some of our most expensive wrong decisions have come about because we've tricked ourselves as we debated our options. The tricks sometimes arise from rhetorical fallacies that tangle our thinking. One of the trickiest is called Begging the Question. Available here and by RSS on March 5.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenjTnUayrCbSnnEcYfner@ChacdcYpBKAaMJgMalFXoCanyon.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, )
• Get 2003-4 in Why Dogs Wag (PDF, )
• Get 2005-6 in Loopy Things We Do (PDF, )
• Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, )
• Get 2009-10 in The Questions Not Asked (PDF, )
• Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, )

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 500-1000 words in your inbox in one hour. License any article from this Web site. More info