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Nine out of ten business cases that cross my desk contain material errors, which often lead to incorrect recommendations worth tens of millions of dollars. If you ever wondered why two thirds of change initiatives fail, here’s your answer: many of them are based on a fallacy, a case that does not exist.

The issues run the gamut from poor understanding of objectives to complete disregard for the established methods of economic analysis, from strategic ignorance to financial ignorance.

Decisions on outsourcing and insourcing are also not immune from this flawed approach. In fact, many of them are deficient for one specific reason which I will outline here.

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If you are looking to outsource or change processes in a multisite organization, you will face a typical organizational design challenge: how do I structure and locate teams to maximize their collective performance. In this article, I will share some of the most salient points which must be considered. This is a result of our work with our most successful clients.

Let’s talk about this concept –  repeated ad nauseum by managers and HR staff all over the world like a sacred mantra — the concept of a team.

Everyone talks about teams and the team building. Inordinate amounts of money are spent on retreats, exercises and training which provide no lasting value. Rare is a job posting that does not include a requirement for a candidate to be a “team player”, which is just gratuitous in this context. Who would say that they are not one?

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A local photographer decided that he does not like selling and marketing as much as he liked taking pictures, so he outsourced it to a small local firm. We received a call from them today, which in its abridged version went something like this:

Saleswoman: “Hi, this is Brenda from Such-n-such Photography. We would like to come to your home and take a picture of your baby – free of charge.”

Kim: “Sounds good. How many pictures are included?”

Saleswoman: “Oh, just one pose, one picture”

Kim: “Can additional pictures be ordered?”

Saleswoman:”Yes, packages start at $120″

Kim: “What is included in a package?”

Saleswoman (miffed): “I have no idea, I just book appointments”

Kim: “Thank you. Not interested”

Outsourcing is as old as the hills and we all do that – I don’t deliver my correspondence in person but the postoffice and courier companies do – but remember that judgement needs to apply.

You should consider outsourcing non-core activities that others do either better or cheaper (while maintaining acceptable quality) than you do in house. For the vast majority of businesses, relationship with clients is a core activity and should never be outsourced. The issue in this particular case is therefore twofold: not only a third party is retained to perform a core activity but, also, they cannot do it well. 

You may be reading this and saying to yourself, “but of course, it’s asinine!” You may feel that what I am saying is just common sense.

The trouble is, even large and sophisticated business often make outsourcing decisions that seem to be against this very common sense.

It turns out that common sense can be remarkably uncommon…

I am happy to announce collaboration with a media outlet dedicated to outsourcing, in particular nearshoring. My articles will appear every couple of months.

In the first article I share my thoughts on three strategic errors in decision making on outsourcing. Read on…

Seeing that many companies are repatriating their previously outsourced processes (I am talking specifically about outsourcing, not offshoring), I wonder where the outsourcing pendulum is going to swing next.

The “outsource-repatriate” exercise is an expensive one. First, there are obvious costs to just executing the transition, twice (and coming back is often very difficult). Second, there are likely even higher costs as a result of revenues and customers lost in the process and inability to address strategic projects while being engaged in the outsourcing hopscotch.

There is one key question that must be answered to save you from this hassle:

Does the outsourced function have strategic value or not?

If the function is not strategic, like facility management, as an example, it is a good candidate for outsourcing. Would Customer Service be a good candidate? It depends. If the responsibilities of the Customer Service department are trivial, such as providing product information and recording service calls, it may work well. If these folks are empowered to make decisions, if your company sees excellent Customer Service as the area of competitive advantage, if you strive to innovate in this area, than no, it won’t work.

The strategic vs.  not  consideration is especially critical in IT outsourcing. Organizations which hastily outsourced their development, found that every project, however small, now came with a hard cost. Innovation became replaced with a rigid contractual arrangement, the progress became convoluted and slow.

Outsourcing allows organizations to concentrate on key strategic activities. Knowing what can be outsourced and what mustn’t is the key decision factor.

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