Seven Myths about Outsourcing

Last weekend's (June 16- 17) issue of the Wall Street Journal has a very interesting article entitled "Seven Myths About Outsourcing" (Subscription may be required - not sure) by Phaneesh Puranam and Kannan Srikanth. Phaneesh teaches at the London School of Economics and Kannan is his student there.

Very interesting article and conveys a lot of wisdom in a short article. To paraphrase, the Seven Myths that they talk about are:

1. We can have it all - Companies set Efficiency Goals AND Effectiveness Goals all at the same time and think they can achieve them all in an outsourcing effort. Efficiency and Effectiveness have inverse relationships. If you want more of one, you need to give up more of the other.

2. Outsourcing srvices is like buying commodities - with no transaction costs. The authors say that this is not true. Transitions and making sure that the process is executed like how you would like, take resources, effort and money. These need to be figured into the cost savings properly to see the true savings.

3. We need an Ironclad contract - Contracts can go only so far. It is more about the long term relationship and making things work!

4. Contracts don't matter - This is the other extreme. Operating without a proper contract and very informally. Leads to a lot of trouble.

5. Vendors are insurance companies - Risks cannot be transferred to the vendor. You may still be subject to risks even when you have outsourced.

6. It's not our headache anymore - On-going involvement and considering the outsourcing vendor part of the team is the only way to long term success.

7. Our first failure should be our last attempt - Companies that are eventually successful at outsourcing are those that do not give up but both client and vendor learn lessons and fine tune their own approaches.

Good article!