Outsourcing – the holy handgrenade of Antioch ! As shown in Monty Python and the holy grail , that is how certain managers see outsourcing as the solution for cost savings.
Starting an outsourcing project requires in a first step to document everything. This requires a kind of feedback-circle, and cannot be done within weeks. Once you document something, this doesn’t mean that it is understood by the counterparty. Questions will come up, while the documents need to be continuously improved – which costs time and money.
In addition you will have to set up an paralell organization. There will be the need for a local manager as well as for a retained organisation which is managing it.
Once the word “Outsourcing” is out, people will start looking for new jobs. In the best case (e.g. in big corporates) this will be within the company – but most of them will search for a new company, due to the missing trust. While a certain amount of people will stay till the end, usually the good & qualified people will leave first.
Those aspects in combination will raise the costs in the beginning.
Many companies already realized that outsourcing services to “far-away” countries comes with bigger problems. To name a few: cultural clash, organizational overhead, time-zone issues.
So what they do is – they start nearshoring. Another nice word, which should be used for Bullshit Bingo . In Europe that is usually Eastern-European countries, which are not that far away, while still having much lower wages.
The idea is good, but obviously it has not been thought to the end. Imagine you are a young student coming from Bratislava. You start working for an Austrian or German company, with a subsidiary in Slovakia. Your skillset is medium and your salary is low. Once you are gaining experience and expertise, you would like to earn more. You will realize that staying where you are will not increase your salary that much. Therefore you might consider going into nearshore countries, offering a higher income. Higher income attracts more people, while on the mid-term there will be a shortage of skilled, cheap staff.
Even you might consider travel time. I know from colleagues, which are living in Vienna and taking 1h to go by public transport to work. Other colleages are coming from Bratislava, 1h train ride.
Here I would like to quote Benjamin Franklin: “The bitterness of poor quality remains long after the sweetness of low price is forgotten”. Usually once organizational structures are changed through outsourcing and the transition period is over, you are left with a minority of the former knowledge keepers. The systems and the support might run, cheaper and with less quality. But on the other side, your innovation force will be less. As innovation force I see the combination of idea-bringers, those who are able to bring it to live in a short period and those who will be able to fix it in operations, once it is there. If you have to define an service agreement for each and every task and a specify everything into detail, you might be the last one – in comparison to your competitors – to bring innovation on the market. And for fast-moving businesses the loss of such a first-mover advantage can be very costly. And once this is noticed the management who decided for it, is long gone.
So if you are ever in the position of making a decision on outsourcing try to compare the cost savings with the decrease of income. The cost/income ratio, which is in favor or many investors, has the second component under the divisor – which is often forgotten: income. And income should be driven by innovation!