In Defense Of Outsourcing: The Commonplace Business Practice Has Improved Our Lives

Often, when a business faces a crisis, critics are quick to point to outsourcing as the cause. But does this commonplace practice deserve such negative press? Here are some reasons to think more positively about outsourcing.

The British Airways episode recently cast in sharp relief contrasting views on outsourcing. Over the weekend, one of the airline’s data-centers was overwhelmed by a power surge. The systems were overloaded and technicians took days to rebuild the database. Meanwhile, thousands of flights were cancelled, 75,000 passengers were stranded and the company’s CEO was desperately firefighting before the world’s media.

The press was quick to condemn BA’s cost-cutting and specifically it outsourcing as the chief contributory factor The GMB union attacked the airline’s history of sending British jobs overseas and denounced the senior management as “just plan greedy”.

This evokes the widely-held belief that outsourcing equates evil. The notion, within the press, is rarely challenged.

Some years ago, Procurement Leaders conducted consumer research on public attitudes towards supply chain management.

In a survey of 300 consumers, based in Australia, UK and US, 62% agreed with the statement that “I think it is wrong when the branded company is not the manufacturer.”

This perspective is sharply at odds with the current structure of global trade.

I found only one voice in the sample that expressed a morally neutral attitude towards outsourcing: “Modern businesses sometimes are forced to outsource to save on cost and availability in order to sustain operation and that is understandable,” said one US-based respondent.

Throughout the study, we found a surprisingly low tolerance for any sniff of outsourcing within production.

This reflects the negatively that prevails in the press. Few positive outsourcing stories are reported in the media, but failures are splashed across the business pages. Even the Economist (among the most pro-business newspapers in print) has wondered whether outsourcing has gone too far.

Business generally ignores this discussion and continues to outsource more functions. In the Arvato Outsourcing Index, for instance, Q1 2017 showed the strongest quarter of growth in the UK outsourcing market in five years.

There are two problems with the word ‘outsource’. Firstly, it is often confused with ‘offshore’(and that is subject to a different conversation). Of course aspects of spend can be shipped to a third-party that is based overseas . We find that this is highly effective in cutting short-term costs. But this is not a necessity. There are number examples of companies outsourcing to a local provider. This is more of a function of the management seeking to shift focus on core activities.

A second problem with the O-word is that is often seen as management-speak for ‘job cuts’. The practice is seen as a rapid means to shed costs under the guise of a third-party that has supposed ‘expertise’ in the area. Opportunists have used the tool to generate short-term wins, and winning a personal bonus on the success, and then moving on to the next contract before problems materialise.

These failures seem to highlight poor implementation. Doing anything badly will result in a bad output. This speaks more of execution than the underlying idea. As with any business decision, managers must weigh pro against con. Outsourcing disrupts operations, can result in lost knowledge and can undermine the morale of staff. But there are significant benefits to be wrought as well.

Outsourcing has dramatically transformed the global economy. Our jobs, consumption patterns and entire lifestyles are partly shaped by the rippling effects of past outsourcing deals. The low costs offered by outsourced contracts – vilified by the press at the time –streamlines the structuring of the economy.

Apple, for instance, does not make any of its own products. It has outsourced production to companies based in China. This has allowed the California-based company to focus on enhancing its competitive advantage: design and user experience. Outsourcing also allows the firm to sell consumers high quality design at relatively low prices. Worrying about production lines, operational issues and logistical bottlenecks will detract from the creative atmosphere that the tech company currently enjoys. To convert it back into manufacturing will likely kill off Apple’s entrepreneurial and artistic spirit.

It would be imprudent to attribute Apple’s success solely to outsourcing, but it has had a positive impact. In fact, if we look at any established company, its operating model has been fundamentally recast. 100 years ago, Irish brewer Guinness owned its own farms and made its own barrels. Now the global beer behemoth is considering outsourcing its brewery in Dublin as its brands enters more markets.

The greater focus that outsourcing affords many companies can unburden them of operational drudgery and catapult them to international and enduring success.

The benefits accrue to shareholders, but also to the workers who possess high-value jobs in companies in which they feel proud. Consumers can in addition enjoy lower prices.

Moreover, the fragmented supply chain that necessarily results from outsourcing provides supporting jobs across the world from a workforce that is increasingly specialised and more productive. Outsourcing can cut jobs in one part of the economy, but it also generates work elsewhere that can create more value.

Undeniably, there are examples of failure. This is true of any business practice. There is bad accounting, HR or team leadership, but project failures are not an indication to suggest that accounting itself is to blame. Rather, it’s the people that misapplied it.

Similarly, with outsourcing, there are plenty of examples of success that we simply take for granted. But there are many reasons to defend its practice within business and some arguments to feel grateful as to the way it has enriched the lives of many.

Source: forbes-In Defense Of Outsourcing: The Commonplace Business Practice Has Improved Our Lives

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