Printed 2017/08/16 08:15PM

Internal Outsourcing

By Andy Warren, 2009/04/22

We'll all heard about or lived with outsourcing, and hopefully we know it's good and bad. Outsourcing the janitorial services is a good idea, outsourcing the help desk...maybe not such a good idea. We outsource for a variety of reasons, but usually it's to save money or to leverage skill sets we don't have or want to maintain. Sometimes it works, sometimes it doesn't, and that all depends on everything - so many things go into making it work out on both sides.

I was chatting with a friend over lunch lately and outsourcing came up in the context of having a parent company provide certain functions instead of having them handled by each subsidiary. The cost savings is not hard to see. Imagine you have six companies all under one umbrella company, and each one has an HR team, a payroll solution, etc, etc. Not all of that is duplication of effort, but there is some. So, the parent company takes over function X and saves some amount of dollars each year. It this outsourcing? And if so, what are the dangers?

I think it's absolutely outsourcing, and it can be better or worse than normal outsourcing. It can be better because you are saving money, and you get more control and smarter investments than you might with someone who is trying to make a profit - my presumption being that when doing this internally you're trying to cover costs only. It could be worse because you don't get much of a vote, it's usually a decree, and worse than that, you may not like the service level agreement that goes with it.

I only have limited experience with this, but it never seems to work out. First, it's human nature that those in immediate contact with those providing the service hear only one side - their side - of the story, and that's powerful, especially when you're trying to convince the main office that they are causing you pain. Next, unless you have the outsourcing run by an extraordinary leader, they will tend to grow and extend their kingdom without regard to what is good for you or your business. Finally, they aren't part of the team - their measure of success isn't the same as yours. Imagine that you have a problem with the building and you need to quickly relocate a few hundred workstations. Your team jumps in to get it done because it needs to be done. Will the outsourcers?

Every business should control it's own destiny with full profit and loss accountability. Hire a leader, monitor them lightly but carefully, and let them do the job. If they aren't doing the job then it's a tough decision to figure out is it external factors or is it bad decisions? If outsourcing - internal or external - looks like a good idea, they should be free to do that too, as long as they can implement it under a service level agreement that provides the means to end the relationship if it's not working OR they just want to go in a different direction.

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