Outsourcing Benefits and Risks

An interesting although an expected outcome of outsourcing challenges (Fired Americans Say Indian Firm Gave Their Jobs to H-1B Visa Holders).

Early on, outsourcing was a strategy leveraged to obtain better services than could otherwise be delivered with in-house staff. Firms could focus on their core business without having to manage an area of the business that they were unwilling to invest in. Employees would join a service provider that provided the support and access to state-of-the-art tools and techniques, not to mention career advancement opportunities. Corporate leadership championed outsourcing initiatives as part of their strategic vision. In many cases, it was a win-win-win for customer, service provider, and outsourced employees.

It was not too long before the strategy turned into a tactic to cut costs. All too often, the strategy devolved into other objectives. Creative financing to get assets off the books. Promising reduced costs that could only be delivered with staff reductions; “efficiencies.” It is no surprise that in the objective to reduce costs, labor arbitrage entered as a significant way to deliver cost savings. I recall the CEO of a major US firm reveling in the fact that he saved one hundred million dollars in operating expenses because of outsourcing. I also recall the many engagements I led providing “marriage counselling” to companies and their service providers for failed outsourcing deals.

Done well, outsourcing can be a significant strategy that delivers positive outcomes. Done poorly, outsourcing leads to higher costs, lower quality service delivery and human carnage.