Desperate Measures Include Outsourcing?

The Wall Street Journal ran an interesting article this morning in which Infosys’ COO says, ”Past patterns suggest that when budgets are under pressure, clients do all kinds of things to get more with less, like outsourcing and offshoring.”

Ah, Shibu, we love your honesty and we are certain you are right.  Sadly, “budgets” do more to drive outsourcing than they should.  They pervert typically rational minds, generating terrible decisions.  Here are some examples:

1. The SVP of HR at a large domestic company asks his team to outsource HR, but behind closed doors he admits, “I need an outsourcing contract with fixed fees, that way the CEO and CFO cannot cut my budget any further.  They’re hurting the company with budget cuts.”  Exactly who is hurting the company?
2. A VP of operations at a medium midwest firm insists that a cost per transaction payment model is bad because, “I can use the fixed fee offshore vendor resources to perform a wide range of projects not included in the scope of the contract and no one can count those FTEs.”  Off contract services?  What better way to create problems with your vendor…
3. A director of operations at small US firm refuses to terminate an offshore outsourcing provider consistently performing terrible services  because he “budgeted monthly service credits for failure to achieve SLAs and a [performing] vendor would be more expensive.”  You get what you pay for.
4. A VP of call center operations for a west coast firm states proudly on an outsourcing governance call, “We are pleased to say we did not have any severance costs when we outsourced the 350 FTEs.  We were able to find other work for them to do.”  Maybe a few FTEs, but all 350 FTEs?  Sounds like a terrible ROI.
5. A finance director preparing an IT outsourcing benefits summary for management, when challenged about the absence of IT FTE cuts but the inclusion of additional costs for outsourcing governance, says, “The work is performed across the USA and is just a small part of the 80 FTEs currently doing the work.  No point in laying people off.”  Does that mean the vendor fees and the new “governance” team are incremental to the budget?

Shibu is right.  If your company doesn’t have formal outsourcing governance, budgets will pervert you.

Related posts:

1. Outsourcing DIY: Less Expensive, Less Scary, More Effective
2. Outsourcing Governance and “Who Owns Supplier Performance Management?”
3. Offshore Outsourcing Management – What’s the Problem?
4. Offshore Outsourcing Vendor Governance Organizations
5. The Business of Outsourcing Certifications