Monday, May 18, 2015

Outsourcing Success and Failure

During my career, I saw a lot of successes and failures in outsourcing by large companies.  The results were often quite expensive and maybe fatal for companies.  Why, in my opinion, does outsourcing succeed or fail?

First, let's look at my experience with outsourcing:

CompanyOutsource Project and YearSuccessFailureReason
Large R&D Organization1987 - Outsource Computer Aided Design Tools (CAD)YesCAD Industry had matured and good tools were available and widely used. Coincided with move from mainframes to networked workstations.
Fortune 500 Company2000 Outsource hardware manufacturingYesManufacturing industry was maturing, processes were well standardized in the industry
Fortune 500 Company2000 - Outsource hardware prototypingYesThe Outsource Manufacturing industry was not interested in prototypes, processes not standard, large variability in needs of company across different product groups
Fortune 500 Company2000 - Outsource Information Technology (IT)YesOutsourcing basic IT (help desk, setups, running servers) was mature but company outsourced many other processes which proved costly and problematic. Internal customers did not understand the real costs and complained constantly. Outsourcing reversed and brought back in-house.
Fortune 500 Company2008 - Outsource ITYesOutsourcing basic IT (help desk, setups, running servers) was mature but company outsourced many other processes which proved costly and problematic. Lack of agreement on scope, metrics between customer and vendor. Outsourcing partly reversed and brought back in-house.
Fortune 500 Company2008 - Outsource EngineeringYesOutsourcing basic engineering services like maintenance was mature but company outsourced many other processes which proved costly and problematic. Lack of agreement on scope, metrics between customer and vendor. Resistance from existing engineering groups. Outsourcing partly reversed and brought back in-house.


What makes outsourcing successful?
  1. Outsourcing something that industry has outsourced before usually works well.  There are vendors with standard offerings, track records, processes are understood, and there are often cost savings due to volume or specialization.
  2. Scope, objectives, plan, benefits must all be well documented and agreed between the customer and vendor so there are no surprises.  If a part of the outsourcing is not clear, it will likely go badly.
  3. The internal agreement process on outsourcing needs to be managed so internal stakeholders, who are often losing jobs or power, buy into the decision.
  4. Asking an outsource vendor to do new things - go beyond their normal offering, is usually a recipe for disaster unless the vendor really wants to do it, the scope is well understood, and there are contingency plans.

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