Insights · March 3rd, 2010
Recently I had the chance to sit down with Kate Vitasek, author of the new book, Vested Outsourcing, with Mike Ledyard and Karl Manrodt. Outsourcing is a controversial but fundamental business activity – as Kate notes Peter Drucker used to say “Do what you do best and outsource the rest,” and the idea of finding people who can do something better, faster and cheaper than you goes all the way back to Adam Smith and beyond.
In recent history outsourcing has become conflated with off-shoring. Having some other company do your IT work, your PR work, your janitorial work, and so on, does not mean, necessarily, sending that work out of the community or overseas. Though of course, in practice it often does just that. I support policies that would limit off-shoring and certainly would not reward it. And, in general I believe that the future well-being of the economy depends on building more local capacity within a global economy.
Leaving the issue of off-shoring aside, however, there is a great deal to learn from Kate and the concept of Vested Outsourcing. The goal is to make outsourcing a win-win-win proposition when practiced. That is, if done right outsourcing a particular function should lead to cost savings for the company outsourcing, higher margins for the company that gets the work, and better service for the customer. That is the goal of Vested Outsourcing, and this is accomplished by implementing five basic rules explained in the book.
1. Focus on outcomes, not transactions.
2. Focus on the WHAT, not the HOW.
3. Agree on clearly defined and measurable outcomes.
4. Optimize pricing model incentives for cost/service trade-offs.
5. Governance structure provides insight, not merely oversight.
These rules add up to a constructive, mutually beneficial relationship between the companies involved. The research done by Kate and her colleagues at the University of Tennessee demonstrates that outsourcing following these rules lead to such a relationship.
My take on all this is that some outsourcing is inevitable and optimal and, given that, it ought to be done well.
[Video production: David Ryder]