Outsourcing has become so rapidly and deeply embedded into modern organisational theory and practice that, in a relatively short time, we have moved from the first emergence of the model to a state of affairs where the question is now increasingly “what can’t be outsourced?” – where activities and functions which only recently might have been considered sacred cows are now viewed as lying squarely within the capabilities of the outsourcing space. Within the private sector, as vendors scrabble for market share and new sources of revenue and buyers continue to seek savings and efficiencies wherever possible, new service lines emerge almost by the day (along with new and potentially game-changing delivery models); in the public sector, meanwhile, what might have previously been thought (particularly outside the less-statist US) to lie beyond the reach of outsourcing is now increasingly coming into play: witness the news only this month that some police authorities here in the UK are contemplating outsourcing some back- and middle-office activities to private firms, which appears to have kicked off a political furore at an already-difficult time for the UK government.
Of course, just because the capability is there to provide a service from outside the traditional organisational confines doesn’t mean that it is right, or indeed sane, to take that option. During my time in this industry I’ve regularly asked interviewees, acquaintances and contributors what they believe still to lie beyond the outsourcing pale, and it’s safe to say that nobody has spoken up in support of outsourcing strategic planning (if that goes outside, what actually is your organisation all about?). There are also clearly a number of circumstances where legislation (especially in industries relating to national security), articles of association/incorporation or labour agreements restrict what an organisation can outsource - although the business case for doing so may otherwise be fairly compelling.
These exceptions aside, however, the trend appears to be towards the MO of “keep what’s core; outsource everything else” – and that therefore the definition of what can and can’t be outsourced is increasingly a case of “horses for courses”, depending on what a particular organisation believes to be its core competencies. (Now, in the public sector this can be a somewhat problematic area – but this is anyway a very large, philosophically fraught subject and one which, as visitors to last year’s SIG London Roundtable can testify, gets me rather exercised, so for the sake of this article and my blood pressure we’ll focus on private enterprise.) In other words, as provider capabilities continue to evolve and expand, companies asking themselves what they can outsource can increasingly answer “whatever we want”, but what that will entail in practice will vary from organisation to organisation.
However, what an organisation “wants” to have outsourced might of course vary from one time, and one economic landscape, to another – or from one board-generation to another. It might make sense for one board at one particular time to outsource great swathes of, for example, the HR function; however, down the line a new leadership team with a different philosophy might believe that “people ARE our core competency” and as such may be of the opinion that recruitment should be an in-house activity.
The problem for this new generation is that outsourcing is almost invariably viewed as a one-way street in that the costs of bringing functions back in-house are often hideously prohibitive; the organisational strain of the initial outsourcing transformation, the loss of in-house capability and the requirement to acquire new and up-to-date technology are merely some of the factors militating against backsourcing (which does of course take place on occasion, but extremely infrequently in comparison with outsourcing). The irony is that while outsourcing is often rightly touted as a means to provide agility and flexibility (especially during times of economic uncertainty) one area where this flexibility is in fact significantly reduced by outsourcing is in the structure of the organisation itself, in terms of its ability to perform a U-turn on its transformation.
And here’s the headache: if outsourcing is generally a one-way process it is by definition a long-term commitment. But so many of the services now on offer, from long-standing outsourcing stalwarts like AP and payroll to relatively new offerings in, for example, the LPO or procurement arenas, are pitched as solutions to short-term challenges – primarily, the need to find savings which remains the single most important driver behind outsourcing projects across the space. What might be appropriate now for an organisation may not be such a good fit in several years’ time (and who knows what the economic, political or legislative pictures might look like at the end of the decade, or what the factors impacting on organisational performance might be?) – but several years down the line it will be that much harder for an organisation to bring a process back into the fold without huge disruption and even huger cost.
This only becomes a problem of course as and when a U-turn becomes a desired outcome – and in the vast majority of cases this simply isn’t happening, at least thus far. But I can’t help feeling that the more organisations outsourcing purely for short-term gain (and anyone who doubts that this is taking place only needed to be present at some of the conversations I’ve had even over the past couple of weeks with buy-side professionals at the beginning of their outsourcing journeys in which it’s been painfully apparent that the impetus towards outsourcing was coming overwhelmingly from the need to improve the bottom line), the more long-term crises lie in store.
And, to return to our initial topic, this is further exacerbated by the proliferation of the outsourcing model into hitherto unexploited areas – because one (admittedly rather glass-half-full-of-poison) way to look at the growth in the number of outsourcing opportunities is as a growth in the number of opportunities to get outsourcing wrong. One thing all these different opportunities, new and old, have in common is that they can all offer cost savings and thus tempt organisations prepared to take decisions on that basis, if not alone then primarily. And once a company has bought into the idea of outsourcing to any major extent it becomes that much easier to open the floodgates.
Let’s be clear: I am not of course (amusing though it would be for a man in my role to do so) speaking out against the outsourcing model, nor against its expansion into new realms. I believe outsourcing to be revolutionary, transformative and a force for good within business. But outsourcing done for the wrong reasons – similar to what the esteemed Peter Smith of SpendMatters UK called at the recent SIG London event “stupid sourcing” – or with insufficient focus on the long term has the potential to be at least restrictive and possibly catastrophic. So, a word of caution in these heady days of the outsourcing boom: look long and hard before you leap – or, perhaps more apt: just because you can, doesn’t mean you always should.