2007/10/27
David Brooks' column in today's New York Times,The Outsourced Brain, touches on an interesting dichotomy. The advantages of our technology that expand our capabilities on the one hand, also have a curious way of rendering us more vulnerable. While Mr. Brooks addresses this issue on a personal level, it has some profound relevance on social, civic and organizational levels.
The theory of outsourcing as it has evolved in business over the past twenty five years is to focus on your 'core competencies', and leave everything other than those core competencies to others who possess greater efficiencies or economies of scale or competence to execute them. In the beginning, this was little more than a ruse employed by some corporations to downsize internally to create a lean and mean image for investors and to shed costly internal staff for less expensive 'external staff' (who, coincidentally, were often the same people they previously employed).
But as information technology permeated corporations throughout the eighties with ever higher degrees of complexity, the search for economies, efficiencies and effectiveness became yet more demanding. And so the corporate mothership out-sources to an information technology out-sourcer, which in turn outsources to an overseas service provider. Along the way the illusion of efficiency is strained by extended lines of communication. The illusion of economy is challenged by the fact that each link in the supply chain exacts its own tax on the profitability of the enterprise and introduces another tangent in goals and objectives that may not remain aligned with the ultimate corporate client over time. The pursuit of economies and efficiencies through outsourcing may in fact be illusory. It is an illusion that is difficult, if not impossible to prove or disprove, given the rapid pace of change in business strategy and the resultant lack of a reliable baseline for measuring results in the long term.
As modern corporations strive for ever more aggressive results, they typically confuse size with power. Discovering that size may be as crippling as it can be enabling, they then seek to 'down-size' by 'outsourcing'. But outsourcing is quite frequently a subterfuge that not only beguiles outside investors; it often deludes management as well. The true size and complexity of an organization is not found only in its internal headcount and organization chart; it must include the extended organization of the supply chain and external enablers. But, I digress somewhat. Let's get back to Mr. Brook's premise of the outsourced brain.
It has been reported in recent weeks that the federal government is increasingly outsourcing critical services and expertise that were formerly in the hands of federal career employees. The argument goes that outsiders can do it better, faster, cheaper....like Blackwater.
The military depends more on outside contractors for support of its ever more complex technology. But it has been noted that the civilian contractors do not necessarily have the same 'commitment to mission' and all that can go with it as sworn personnel. And they come at a much higher price, but that's not a problem because the taxpayer is picking up a bill that he/she never gets a chance to review. What happens when the contractor or key personnel decide that the contract, the technology, the market niche isn't fun any more, and they decide to pack their tent at the end of contract and try another gig? That is the very essence of 'free enterprise'. The right to choose.
This same dynamic applies to the corporate world, where the contractual handcuffs on out-sourced subcontractors can provide more an illusion of control than a reality. Among recent examples are the challenges of doing business in China and other developing countries. Moving key components of an operation out-of-house may reduce costs, but most definitely can reduce control of quality or intellectual property, or offset the cost savings of manufacture and service with a heightened or altered need for management oversight, the most critical resource of an organization. There is no free lunch, and the break-even point in the long run may not turn out to be what it seemed at the time the ink was drying on the outsourcing contract. Once a function has been moved out-of-house, it is inherently subject to less oversight and control. A contract can prove to be a relatively blunt instrument of influence when a critical function becomes captive of a contractor, particularly in an industry with few credible alternatives.
In one of my former corporate lives, I once quipped that the corporation of the future will consist of three people: The CEO, the CFO, and the administrative assistant who processes the electronic payments to all the outsourced service providers. But it's no longer a joke. What kinds of services can the typical corporation outsource today besides manufacturing?
- human resources
- marketing
- legal
- product design
- facilities management
- public relations
- business strategy
- information technology development and operation
- security
Oh, yes. and even the CFO. That removes the succession threat to the CEO, since the administrative assistant is too smart to want the job anyhow.
The point of all this? We too often confuse complexity with sophistication, and size with power. Outsourcing can be an enabler of these delusions. If we consider more modest goals on a more attainable scale, we might be surprised to find a richer and more sustainable future.
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