Punitive Outsourcing and How to Avoid It
In early 2004, I published a META Group paper entitled The Expanding Operational Maturity Gap wherein I formally introduced the term punitive outsourcing. It has become one of my favorite wakeup calls to IT because it taps into that visceral paranoia invoked by any phrase containing the word outsourcing. Punitive outsourcing is self explanatory and almost always elicits a sober chuckle of resignation. It seems a lot of people reluctantly concur that their future is in peril unless something changes.
Fear is an effective incentive to improve. While outsourcing is an expletive to some, the only true reason to fear outsourcing is when it is used as an alternative to the internal IT organization’s ineptitude. This is punitive outsourcing. If you can’t deliver, business leaders will seek someone who can.
Senior business leaders become exasperated if internal IT repeatedly fails to deliver satisfactory service. These leaders are not being irrational or evil; they just see no hope in continuing down a path to ruin. It is their responsibility to use the most effective tools to maximize the business’s financial performance. They will keep tools that work and replace tools that do not. This may come as a shock to many, but IT is just another tool used to (hopefully) maximize business performance.
The general fear of outsourcing is overblown. There are situations where targeted outsourcing makes sense. Every one of these situations is properly planned, negotiated, executed, and managed. This is where most outsourcing fails and it is one reason the concept has a tarnished reputation. I found an interesting study by Everest Partners that analyzes why outsourcing fails and only 8% of respondents identified poor provider performance as a leading failure cause. The true causes are overwhelmingly self-inflicted (e.g., unclear expectations, poor governance, poor communication).
Of course, the major fear of outsourcing is the personal turmoil that comes from uncertainty of change, and the perception of failure. Even when people simply get moved from the mother company to the outsourcer, as is usually the case, there is an emotional detachment from the mother company that takes its toll on them. The uncertainty revolves around whether the outsourcer will treat people with respect (i.e., “Do I have a future here?”). People who once felt valued for their creativity and skills can feel like indentured servants if they become just another cog in the big machine.
Each of us can help prevent punitive outsourcing by doing the following:
- Institute discipline in the operation
- Don’t shun change – embrace it
- Relate every action to its business value
There must be critical mass of adoption however, and it needs to begin at the top of the hierarchy. One low-level staffer with the right vision is a voice in the wilderness. A small group is an intellectual insurgency that will likely be crushed. Lots of people must follow the same principles. This is by far, the most difficult element of any transformation. Inertia becomes more obstinate as the group gets larger. This is why executive mandates are essential. Executives are the only people with enough clout to build momentum amidst such potent inertia. They offer the carrots and wield the sticks and because of their positions, they can do both in a big way.
If everyone in the IT organization adopts these principles, I guarantee punitive outsourcing will not happen. If business leaders are getting genuine competitive advantage from IT, they would be fools to hand off such a critical function to someone else. Wal-Mart’s then-CIO (since promoted) Linda Dillman was quoted in a
I’ll offer a bit more detail on the three ingredients of my punitive outsourcing vaccine.
Institute discipline in the operation. If you are familiar with my work, you know it relentlessly encourages discipline, something we need badly in IT. As an industry generalization, we are sloppy in our ways and the result is poor service. This is why IT has such a poor reputation and why punitive outsourcing is such a threat. Discipline comes from strong governance, a common-sense approach to controlling the various IT functions the way a manufacturer controls the quality of its products.
Standardized processes minimize ad-hoc improvisation that often backfires. ITIL is a wonderful guide for standardizing processes. Use it as your foundation. Enterprise Architecture establishes the framework to link the “nuts and bolts” of IT into relevant and truly beneficial business automation. Risk management goes well beyond the common notion of security and regulates all sorts of business policies that foster business growth by minimizing the genuine forces that inhibit this growth. This is more pragmatic and effective than trying in vain to build walls against every possible threat, whether it is real or not, whether it has true impact or not.
Don’t shun change – embrace it. Change will happen. Get accustomed to it. There is nothing any of us can do to prevent it. If you can’t beat them, join them, as the old saying goes. If change is inexorable, become one who doesn’t just ride the wave. Cause the wave. I’ve said it before, but it’s worth repeating verbatim here: Those who embrace change and fuel its execution will triumph over those who foolishly attempt to resist the inevitable.
Job functions will evolve. Some will either become obsolete or marginalized. Fear not. If you are adaptable, you will thrive. If you attempt to stubbornly perpetuate a single skill career, that career will be short. As valued skills vanish, others emerge. Follow these trends to remain viable. Lead these trends to become invaluable.
Relate every action to its business value. Technology itself is meaningless. Gasp! Did I really say that? Yes, I did. Technology is only meaningful if it’s useful. In this case, it must be useful to the business. I dig more into this point in my blog post “Service” is in the Eye of the Beholder. If what you do benefits the business, do it. If not, question the wisdom of moving forward. Our employers do not pay us to tinker with cool technology. They pay us to help the business make money. This is the only thing that really matters to senior executives. Remember them? They’re the people who make the strategic decisions that affect our futures, decisions such as punitive outsourcing.
Punitive is punitive. It’s not a good thing no matter how you view it. Even the outsourcer’s windfall may only be temporary. If things were so bad that they led to punitive measures, it is likely there is something deeper and more systemic within the business. If this is the case, the business may be doomed anyway. The only winners in the end will be the scavengers who pick apart the remains of the corporate carcass for pennies on the dollar.
You can avoid punitive outsourcing. This is not some far-flung theory. It’s being proven in many businesses. Look for an enterprise that is altering the course of its industry and you will find a business that is NOT on the path toward punitive outsourcing. You will find a shining star that you can emulate (or join!).