Ailment #2 – The Outsourcing Paradox

A company afflicted by the “Outsourcing Paradox” malady may exhibit a telltale initial symptom: an attempt to develop the “perfect” set of tasks, frequencies and measures. The “experts” within the company try to prepare what they consider the “perfect” Statement of Work. The goal is to tightly define the expected results. After all – we are all taught that we need to clearly define expectations, right?

The result is an impressive document containing all the possible details about how the work is to be done. At last, the perfect system! However, this “perfect system” is often the first reason that the company will fail in its outsourcing effort. That’s because it’s the company’s perfect system, rather than one designed by the provider of the services. We call this disease the “outsourcing paradox.”

Thought leaders in performance-based concepts warn that an ill-written task-frequency specification sometimes can create harmful and insurmountable obstacles to a successful contract. A too-tightly written statement of work makes outsource providers responsible for the work without giving them authority to exercise their own initiative in carrying out the work, as Vince Elliot observed in his 1991 article “Task-Frequency Specs: Time for a Change?” published in Cleaning Management Magazine.

We found a classic real-world example of the “Outsourcing Paradox” at work in a third-party logistics (3PL) provider that runs a warehouse of spare parts. During our site visit we saw about eight people servicing a facility that on average had fewer than 75 orders for spare parts per day. We asked why the company needed that many people at the site. We were told, “That is what the company that is outsourcing requires per our statement of work – so I have staffing at that level to meet the contract requirements.”

We are continually amazed to find that companies have chosen to outsource to the “experts” – yet then define the requirements and work scope so tightly the outsource provider winds up executing the same old inefficient processes. This disease can be exacerbated when coupled with another condition we call the Junkyard Dog Factor.

Read More! Move on to Ailment #3 The Activity Trap

Comments

  1. In a supporting example, I worked with a company that was outsourcing 95% of it’s develoment work out of the country. Then demanded an SLA that was impossible to keep. The technical and business requirments were to run all changes through a seperate test environment before running through the production environment. Each stage of the test environment required approval from comittee members who were a mixture of nontechnical and technical experts.

    The international team realized that by going through a test process, they would always miss the SLA by over 1000%. So instead they exectuted and tested changes in the production environment. This often caused the system as a whole to go down on a frequent basis. Customer churn eventually caused the organiztion to go bankrupt.

    In this case the “Perfect System” also turned out not to be so perfect.

    Thanks for your article.

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