Is it time to dump the term "outsourcing"?

Having worked on a large number of "O" initiatives with enterprises over the last few years, the term outsourcing has given me nothing but problems. The minute the "O" word is uttered, staff get defensive, passions get stirred, resistance occurs.  Often staff quickly brush up their CVs for a hasty exit before the axe falls.  Staff and management tend to associate outsourcing with job losses, and their firms using low-cost labor from service providers. 

But what else can you use when you are looking to move into a multi-year engagement with  third-party service provider, where you will use their staff, technology and processes and likely reduce your own inhouse overhead?  I have experienced companies trying to disguise the fact they are outsourcing by labeling their service initiative as "out-tasking", "co-sourcing", "right-sizing", or even "resource-optimizing" (oh, there is more...).   Peter Allen also chips in with his preferred term "services contracting".  However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor.   

Personally, I prefer the term "managed services", as staff are not always transitioned out of the organization, and management responsibility for running the contracted services is transitioned over to the third-party provider.  However, outsourcing has become ingrained in modern business vernacular, not dissimilar to information technology.  It describes the activity a company goes through when it engages a third-party to take on the management of specific IT or business services on a long-term basis.  However, I would stress that outsourcing these days describes the activity of evaluating and transitioning the processes and not normally the long-term management of them.  For example, if a company decides to engage ADP to take on its payroll services, it will say "we're outsourcing our payroll to ADP".  However, ask the same company how they run their payroll a couple of years later, and it will say "we use ADP for payroll".  It won't say "we outsource our payroll to ADP".

So all-in-all, if you are looking to outsource processes, be upfront with your staff and tell them you are looking at outsourcing opportunities.  Explain they are a key part of making this outsourcing initiative successful and you need them onboard to support the initiative.  It will be good for their career, and they will have the chance to take on new tasks that are more core the the business - for example vendor and service-level management and higher-level business activities that directly impact senior management decision-making.   The more upfront you are with what you are doing, the more your key staff will appreciate the honest communication, and the more likely they will be supportive and proactive in making it work.  If they still resist and try to derail the process, at least you know who the dissenters are and who may not be onboard the train once it has left the station.

If you have any preferred terms for outsourcing, I'd love to hear from you...

Comments

[Georgia Logistics Services]

Interesting article.

You know the old saying : "If it walks like a duck and sounds like a duck..."

I think that no matter how hard a business tries to soften the announcement of "outsourcing" employees will get nervous about their jobs.

I'ts only human nature.

That is why businesses thinking about third party logistics outsourcing need to think of how they can redistribute their employee's strengths to other departments.

By planning ahead and communicating this to the employees in advance, outsourcing benifits the business as well as the workers morale.

[Merydith Willoughby]

Hi Phil

Outsourcing became part of our language when globalisation came into force. And certainly many millions of people have lost their jobs through this process. It's scary for anyone to hear the word and I agree with your idea about explaining to people what you mean by the word.

Whatever word you change it to it will still mean the same thing so as professionals we have to be good at explaining what we're talking about in this circumstance but most importantly to be honest as to what we're doing and not try to package it up sweetly when it's not sweet at all.

Best wishes
Merydith Willoughby

[Jason Brown]

To tell you the truth it is really irrelevant what sobriquet you give the term. The reality is that when an employee hears the word they also hear..

"You are not good enough"
"Your value to us is diminishing."
"You job may not be here in 6 months"

Imagine if the CEO came to you as a manager and told you that they were "insert clever moniker here" your job. That is the equivalent of "It's not you it's me," while getting dumped. Remember that it is not about the truth here, it is about the perceived truth by the employee. Stop saying "It won't affect you at all." That is untrue. It might not affect them today, but it will affect them.

[Uttiya Dasgupta]

Phil,
Great question! You have also received some good answers.

As a consultant, I also find the "O" word dreaded in most organizations. However on drilling down a bit deeper, one finds that things are not so severe with companies that have defined (or are defining) "O" as a strategy to grow the business. The strategy could be - get our existing services contracted out to a third party, while the in-house team focuses on a new service line (or vice versa), or even as simple as - in the case of work over flow we will also turn to service providers. Obviously this has to be defined by management and ingrained in the work culture of the company - which is not easy.

Most problems tend to arise, when outsourcing is a reaction to an event. For example - our competitor down the street has saved millions, or we have to transfer X jobs offshore to offset our dwindling profits. Significant resistance is expected in these situations and buy-in gets difficult.

The O word is here to stay.

Thank you.

Uttiya Dasgupta

[Subir Dhar]

Phil,

I think there is nothing wrong in the word "Outsourcing" - but how "Outsourcing" is handled, makes all the difference.

In many organizations, it becomes imperative that they outsource tasks to be lean and focus on core tasks, which possibly enables them to be competitive. At the same time, it is surprising that the managers fail to communicate well, and create an environment of trust.

I strongly feel that the managers should consider - what they can do to ease the pain of the people, or better still, what they can do to enable affected people to earn, say 30% more than the current levels. So, for example, how about asking the incoming service provider to take certain number of people, or train them in emerging and high paying skills and technologies. So, a software developer gets trained in Project Management or SAP technologies, and ends up earning more. This way the goodwill and trust will be created in the employee community.(In other words, the management should aim to increase the NPV of the affected employees).

Regards

Subir Dhar
Bangalore

[bill.huber@tpi.net]

Phil,

Outsourcing simply reflects a point in time in the delivery lifecycle of a particular service. If this service is perceived as being part of internal operations, then the migration to an external provider is appropriately called outsourcing. Several years later, managed services may be a more appropriate term, as you point out. The key distinction is whether the business case needs to include costs associated with transitioning of internal people and dispositioning of related assets. For those contracted services that are net new to a company, but are of similar levels of sophistication to outsourcing, I tend to use the term "complex services sourcing".

[Phil Fersht]

Art,

You have a great point. However, outsourcing is often adding far more to a firm than simply reducing costs through staff reductions, for example, adding skills in scarce areas, access to new technologies and improving process flows. My concern is that "outsourcing" comes with a stigma that isn't always justified. But dressing up the word doesn't seem to help much either!

Phil

[Art Miller]

Aren't euphomisms wonderful?

We don't have used cars anymore, we have pre-owned cars.

Back in the 80s, when lots of US companies were cutting jobs, OD people decided it was better to say it was rightsizing rather than firing people. Even downsizing sounded too harsh. "Charlie, we're not firing you, we're just rightsizing the company. Have a nice life."

Suggestions that outsoucing sounds better if we call it "rightsourcing" or "rightshoring" are absurd. It is what it is.

Economics is a cruel science. Get used to it!

[Sunmeet Jolly]

I think "Outsourcing" should be replaced by "Right Sourcing".

It could include decisions on "Near-shoring", "Offshoring", "Managed Services"... esentially taking a cost out of your balance sheet and transfering it to an Optimal Organization which can provide those services at Lowest Total Cost and the correct Solution

[Anand Krishna]

What is basically being provided by an "outsourcer" is a service. That the service (say developing or maintaining an application or handling a business process) is being provided by a team (or organization) that is legally "outside" the client's organization or is delivered by people at a location half-way across the earth (although this is not always the case) is incidental. Using the above definition, conventional management consulting services, I-Banking and janitorial services too can be described as being "outsourced"- but nobody ever refers to them using the O word.

Admittedly, there is a huge emotional element associated with the term "outsourcing". Many people automatically assume that "outsourcing" is synonymous with asking a vendor in India, the Philippines or wherever else- and therefore, jobs are inevitably lost. And this is why there is a strong reaction to the term. Forget the economics for a moment. If a client invites a service provider from across the street to deliver the services, would the negative connotation associated with the word "Outsourcing" be as strong? I think not. And to an extent, this is because the client's employees currently responsible for delivering the service can more easily keep an eye on and control the service providers across the road than on a team based in Bangalore or Shanghai. And push come to shove, they can always leave the client (their current employer) and join the service provider.

Personally, I think the debate should be less about what it should be called, and more about how clients (and service providers) can both realize greater value by looking at new contracting models, enhancing the scope of services, using new service models etc.

[Ratnesh Mathur]

Interesting to note that your post on "Globalisation" got 5 responses, but this discussion on the word "Outsourcing" has generated 30+ inspired responses. This outsource term is still hot, Phil - so keep your horse on the course some bit more ...& enjoy the ride !

I think we all recognise that - Outsourcing - is basically, an age-old Build vs Buy business decision and - Offshore Outsourcing - is a mix of Build vs Buy & Globalisation decision. Whats in a word - there will always be someone selling old wine in new bottles . Just as some organisation structures today use - International , Worldwide, Global, Emerging markets, HQ & regional/country - & many more nomenclatures , you can expect to see various labels for this nature of - Global Build-Buy - decision-makers inside large corporations. On the supplier-side, don't expect this new industry tag - Outsourcing - to go away too soon. Some countries (like India, US etc) already have a registered trade called "Outsourcing" or "BPO" but there are slow regulatory changes underway in some other parts of the world (eg. several CEE countries) to offer licenses for "Outsourcing" trade, in addition to current trades likes - SSCs , Call Centers etc. Government incentives for this new trade will continue to be good enough incentive for suppliers to call a spade, a spade !

The word SOURCE in english today largely means " a text from which information or ideas are derived". However, etymology of the word SOURCE is bit different. Its from the old French word - SOURSE - which finds its roots in Latin word - SURGO - which translates to - To Rise ( also root of the English words - Insurgence, Resurgence). Given the surging importance of this - Global Build-Buy - nature of activity, SOURCE or SOURCING or its various other forms, don't seem too inappropriate.

Transparency & ethics are important in all forms of business. While much of the focus in the offshore-outsourcing world has thus far put the spotlight of transparency & ethics on the supplier, as you rightly state, the buyer/builder of these services should be honest & upfront in the communication with its own employees too.

[Erik Amend, PMP]

The term outsourcing has picked up numerous negative connotations over the last fifteen years. This is due in large part because when work and or positions are outsourced, work (and wealth) are transferred from one group to another. There is always a winner and a loser, and in many cases management fails to a) fully explain the rationale for the decision b) share with employees how the decision benefits them and the company or c) both. The key is to maintain a positive communication strategy that accentuates the positives and addresses the potential employee concerns head-on. No need to hide out. Employees may not like the overall message initially, but they will respect you less and your credibility will be eroded if you try to "dress it up". Positive examples might include, "we need to outsource this specific function because we do not have the in- house bandwidth to support this tactical ramp-up for a short period of time and hiring temporary employees does not meet our needs" or "we need to outsource XYZ, because this has become a function that is outside our core business model. In so doing, we can shed expenses, continue our expansion plan and actually add more positions." Let me pose this question, "If your company were to take back work and Insource a function or process, would you hesistate to use the term Insource?" Probably not as this word has a positive connotation. "Outsource" itself is not a bad term. How management applies the communication surrounding it (and change in general) drives its perception.

[Glenn Gruber]

I agree with a lot of the commenters that "services" is the more preferable term to outsourcing and perhaps over time this will evolve, but we will be stuck with the term for some time.

But the fact is that outsourcing has become a pejorative term. And the strongest critics of outsourcing are those that decry the move of jobs to lower cost offshore locations. Per Richard Law's comment, I don't think that there's a confusion between offshoring and outsourcing, but an intentional effort by critics of outsourcing to illcit a jingoistic response to strengthen the effect of their criticisms.

[John Hindle]

I've always held that outsourcing is a phenomenon, not an industry -- it's a bit of jargon we use to describe the process of transforming legacy organizations from the old Alfred P. Sloan vertical silo model (think General Motors, with "up-across-and-down" information flows) to a flatter, more flexible, responsive, and highly networked model of interdependent specialist providers. The enablers, of course, are communications and data exchange capabilities that couldn't have been imagined 75 years ago. Our available tools shape what we can build.

In 10 years' time, we won't talk about outsourcing, because nearly everyone will have done it (or they may well not be around). The terminology will morph into "business services," and we'll talk about buying HR or F&A or Procurement services in much the same way we buy delivery and logistics support today from UPS or Fedex or Ryder.

To draw upon the roots of this blog's name, it's about horses for courses...

[Parikshat Chawla]

I prefer 'Smart-sourcing' as it covers the gamut of generic terms from Outsourcing, near-shoring, off-shoring, managed services, etc etc.

The term seems a bit elitist, but with both companies and service providers looking to various options for managing their labor / cost arbitrage - it does come across with least negative or binding connotations.

[Shreya Shah]

Hi Phil,

My point of view is not the word "outsourcing " but the feel of making the staff that they are the key part of any new project which the organisation looks forward to start with.
I agree with you on this statement. the succes of any oganisation grows only when it considers human capital to be very much important and their complete involvement in the project helps the organisation to grow faster.

Nowadays i have read many articles saying that the organisations consider more and thinks more about the employees. Their requirements, their problems and above all the skill and knowledge which they posses. "Right candidate must be paid a lucrative amount", this is the funda of any organisation. This ultimately helps them to grow and make a good repo with the employees as well.

Shreya Shah

[Kevin Singel]

I think we have to stick with the term 'Outsourcing' simply because that is the straight talk about what is happening in those situations. The phrasing that makes me cross-eyed is when offshoring and outsourcing are confused. They are not neccessarily the same thing.

[Richard Van Deusen]

As other responders have said, outsourcing by any other name is still outsourcing. Although companies have been sub-contracting parts manufacturing and some services for well over a century (which was also outsourcing), the term became accepted when Kodak began outsourcing IT services in the late 1980's. In fact, Kodak was one of the first companies to develop managed outsourcing procedures with which just about everything they did was evaluated as a candidate for outsourcing. IT has now moved on to calling it Managed Services.

It made good sense, and still does, for companies to outsource commodity work, whether that is to a company or to independent contractors, temporary workers or freelancers. Why should a company employ cafeteria workers, janitors or computer programmers who can perform exactly the same function for any company.

Where outsourcing got an undeserved bad name is the loss of US manufacturing jobs and corporate downsizing. If your job is at risk, you look for scapegoats. Right now offshoring (more than outsourcing) NAFTA and China are the scapegoats.

I definitely agree with your solutions, Phil. It is important to engage the staff, even down to the lowest levels, in the process. Let's also be sure of the distinction between outsourcing, where the staff might have a shot at moving to another company, and just plain downsizing where a company is looking to reduce headcount through job elimination.

In the area of creative and media production services where I consult, outsourcing and co-sourcing have been an accepted practice ever since we were doing filmstrips.

Incidentally, one company that provides contract staff to run training center and conferencing facilities for corporations calls that "in-sourcing." By whatever you call it, it's still outsourcing.

[Arpana Rawat]

We can certainly try but rebranding is not as easy...remember we xerox things and fedex them!! Try to replace these words, tough, right!

[Alan Lockhart]

Phil - Don't blame the terminology for an idea that doesn't sit well with staff.
Calling it managed services, rightsizing, resource optimization, or even creative human resourcing won't do anything about the perception of the idea.

As others have said, I think that it is important to be honest and upfront with people when making this decision. It is also important to set the same standards for resources obtained through outsourcing that you would use with regular employees and to teach them about the culture of your organization before they begin to interact with staff or work on any project. The culture of the organization itself should be a factor in hiring someone on an outsourcing basis as well.

To often, inhouse staff is kept away from these folks, who are instead communicate with only one or two people within the company. Individuals hired on through outsourcing should be made a part of the company directory, should have contact numbers, and if they are focused and permanent resources should be in the company's email system. People generally are more accepting and more trusting of those they can get to know or whose presence isn't rendered nearly invisible.
At the same time, people who do work in an outsourcing arrangement should have to follow the same policies, adhere to the same rules and be held to the same expectations as regular staff. I know people who have worked in companies where outsourcing was done where the rules were entirely different for people outside of the company.

If outsourcing is designed to create new efficiencies within an office setting, it is important that these people be made as much a part of the team as anyone else. Until this becomes a standard part of the business culture, outsourcing will always be met with unease.