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Posted by Susan on 5:54 PM Monday January 12, 2009 under

It's heavy irony that satyam in Sanskrit means "truth."

So what are the truths behind outsourcing?

The Saytam meltdown provides a critical moment for us to re-assess our outsourcing needs and understand the truth of their limitations. Done right, outsourcing can enhance focus, flexibility, agility, quality and efficiency.

Done wrong, outsourcing puts the enterprise at risk.

As I wrote in 2001, "My CIO clients have plenty of experience in outsourcing. In fact, about half of their personnel work for somebody else, on average. That last thought always gives me a chill. At the end of the day, half of their people don't work for them--they work for somebody else. Those employees are working to achieve another company's long-term vision and are part of somebody else's culture and career development plan."

At the end of the day, outsourcers don't work for you. When interests of the company and the outsourcers diverge -- and believe me, at some point, they always do -- it's important to have a contingency plan. For those Satyam clients who rushed to outsourcing like a blue light special at K-mart (okay, my age is showing) and didn't take the time to develop a contingency plan, the discounted goods are carrying a heavy price.

Contingency plans are best defined as part of a company's in-sourcing plan. An in-sourcing plan identifies the work that must be performed internally and how to retain critical subject-matter DNA when using external sourcing options.

My favorite sourcing diagnostic is one that developed by Novations over 15 years ago, when I was CIO. Using a simple matrix, leaders can delineate the four types of work and determine the appropriate sourcing and management strategies for each:


cramm-figure.JPGValue added is defined as work that differentiates the company from its competitors (e.g., relationships with key customers); conversely, business necessity work must be done to stay in business but does not create advantage (e.g., IT call center). Proprietary work is unique to the company (e.g., how information is defined, sourced and used) while generic activities are typically pretty common across the industry if not across most businesses (e.g., processing payroll). 

To determine the appropriate sourcing and management strategy, define the key activities that occur in your organization and allocate them to one of the four cells: 


cramm-table.JPG

Outsourcing the development of key business systems (not just generic programming skills, but value added and/or proprietary skills including program and change management, business analysis, and architectural planning) without provisions for skills transfer creates significant risks for the enterprise. Even if the outsourcer doesn't melt down, continuous outsourcing of value added-type work means that the capabilities necessary for innovation are in the hands of employees who don't work for your company.

Outsourcing proprietary work, without ensuring that internal management are involved on a day-by-day basis, means that someone else's employees know more about critical business operations than your own.

Putting all your outsourcing eggs in one basket creates a monopoly where service levels and costs will likely suffer and key activities are in the hands of a single company whose employees don't work for you.

As Satyam's current clients scramble, take this opportunity to develop or update your in-sourcing plan and assess your company's risk. Given the economy, this is a perfect time to minimize layoffs and retain key employees by in-sourcing work that should never have been outsourced at all.

 

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