Executive Briefings

"Isn't Everyone Supposed to Win in Outsourcing?"

In the past, outsourcing was a very simple decision," says Russ Pass, a founding member of Chicago-based business consultancy Bridge Strategy Group. "There was lots of talk about service and turnaround time, but once you got into the contracts, negotiation and agreements in the manufacturing industry, it was all about cost."
More recently, this formerly cost-centric equation has expanded in scope, says Pass. "There's a much greater willingness now to look at outsourcing those core processes that are not critical to the competitive edge," he says. "IT is an underperforming function--it has been for as long as people can remember--and everyone knows the reasons why. Executives are saying 'I'm willing to pay a premium just to get it off my plate.'"
According to Pass, much has been made of manufacturers "re-sourcing" formerly outsourced IT functions--a dynamic that Pass says can be attributed to a rocky beginning to the relationship. "In the past, all too many companies started off on the wrong foot," he says, setting a confrontational goal that led to a "zero-sum game." This set the stage for failure. "Saying 'everything that is good for me is bad for you' is no way to do business," he says.
Another big mistake in the first wave of outsourcing? Underestimating the need for flexibility on both sides of the table, says Pass. "Locking things in stone has proven to be far less in the business's interest than was thought at the start," he observes. "Writing a contract and locking things in with a provider that prevents them from turning a profit is not a good thing either, especially if the provider goes out of business."
Source: Industry Week, http://industryweek.com

In the past, outsourcing was a very simple decision," says Russ Pass, a founding member of Chicago-based business consultancy Bridge Strategy Group. "There was lots of talk about service and turnaround time, but once you got into the contracts, negotiation and agreements in the manufacturing industry, it was all about cost."
More recently, this formerly cost-centric equation has expanded in scope, says Pass. "There's a much greater willingness now to look at outsourcing those core processes that are not critical to the competitive edge," he says. "IT is an underperforming function--it has been for as long as people can remember--and everyone knows the reasons why. Executives are saying 'I'm willing to pay a premium just to get it off my plate.'"
According to Pass, much has been made of manufacturers "re-sourcing" formerly outsourced IT functions--a dynamic that Pass says can be attributed to a rocky beginning to the relationship. "In the past, all too many companies started off on the wrong foot," he says, setting a confrontational goal that led to a "zero-sum game." This set the stage for failure. "Saying 'everything that is good for me is bad for you' is no way to do business," he says.
Another big mistake in the first wave of outsourcing? Underestimating the need for flexibility on both sides of the table, says Pass. "Locking things in stone has proven to be far less in the business's interest than was thought at the start," he observes. "Writing a contract and locking things in with a provider that prevents them from turning a profit is not a good thing either, especially if the provider goes out of business."
Source: Industry Week, http://industryweek.com