Wednesday, April 13, 2005

Perils of Indiscriminate Outsourcing

Tomes have been written by many an industry pundit on the quest of the silver bullet for maximum ROI through outsourcing. Fact is there is no silver bullet (at least everyone agrees on that one) and what is more very few companies manage to get the formula even close to right.

Increasingly BPO outfits have capabilities to take on much more than grunt work and customers are aware of that. With almost any kind of project becoming fair game for an outsourcing vendor, one misguided engagement can result in long drawn out suffering for the customer.

Suffering as in below par performance of the offshore vendor, service level agreements being fraught with ambiguity besides the usual suspect - budget overrun. Typically starting at level three production support it is not long before offshore resources take over core business processes eliminating any possible competition from another vendor.

It would take a sizeable Knowledge Management project to transfer knowledge from the vendor back to its source. By when a vendor is that deeply entrenched in an organization chances are that the customer be left with little choice but to continue engaging them. The numbers in the game by this time are not nearly as attractive as they were at first. The vendor will push thus far and no further knowing there is threshold to tolerance. The customer continues to loose out nevertheless.

A typical knee-jerk reaction to a situation like that is to lay-off some of the more expensive (typically highly experienced) technical resources on-site and transfer the whole operation offshore. To management this may be the only way to increase vendor accountability and make the engagement profitable to business. Maximum damage is now done.

Vendors may come and go over time, but core business competencies have been lost several times over. The hidden costs in outsourcing are in the time dimension that are very often overlooked in overzealous deal making with a line of sight limited to short term returns.

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