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

[Marie Claire]

it is not the name that matters but how you handle outsourcing into your company. it is right that in outsourcing you need trust and honest service provider.

[Amandip Minhas]

Hi Phil and others,

This is my personal opinion, the word Outsourcing changes its depiction by the relationship an outsource partner carries with the outsources. There are various new comers into this segment who consider this to be a traditional vendor-supplier relation. These outsources would handle an outsource partner similar to their caferteria vendors. And this is purely because of their limited exporsure to this segment. On the other hand their are professional and experienced Outsourcers who deal with professional outsource partners and they carry a very different level of 2 way relation.

In my opinion, the outsourcing industry/segment has reached a level where most outsource partners are more experienced and knowledgeable than the outsourcers. I know a few outsourcers who take pride in admitting it and use the outsource partner's knowldege to their benefits.

I am employed with an outsource partner and currently consulting my client (outsources) on their processes. My ideas and suggestions are always welcome and chges are implemented on my recommendations.

This type of mutual relation is commonly called Shared Skills where both parties have common business objectives and each party respects and understands the business model of the other.

Nothing wrong with the old word Outsourcing but more than the word we need to change the operating model and perceptions.

Aman

[Robert Jakobson]

I'm going to give you several magic terms. They're accurate, they're descriptive, they're honest and they're truthful.

Work.
Team Assignments.
Teams.
Project(s).

Why are you calling it outsourcing in the first place? You're hiring people to perform a job. You don't need to give them a name. Haven't for years. If the people involved on the project(s) you're doing don't understand that all that is happening is that certain portions of the work in the over all project are being performed by contracted or vendor assignments then you've already blown it.

People fear outsourcing for one reason ... if the work is being sent "outside" then it's not being done "in-house" and that means that "in-house" is not benefiting the project. What part of the project is being done by in-house resources? Focus them on the work they need to be doing instead of making them wonder why they're not doing the other work.

The people (the Team) on the project needs to know what they're supposed to be doing. And you need to specify this in advance and let everyone understand their role. If someone says, "Hey why are we doing in house?", be honest. "Because it's not beneficial to do it that way. We get more benefit out of having our in-house team members working on ".

Don't sugar coat it. But don't be all gloom and doom either. Just tell them the truth why - and show them what their roles are. If they worry about long term roles in the company - then you need to show them the work you have for them and reduce those fears. If on the other hand ... they have a reason to be worried then you need to let them know that as well.

If people are going to be outsourced - if they're jobs are going away you are not doing them a service by candy coating it or deflecting the question. There is a reason why Doctors tell patients the truth even if it's brutally painful. It's easier on the patient.

Be honest - if you are often enough, people trust you regardless.

Calling it outsourcing isn't accurate. It's just a vendor - a contractor. And the work being done is just work. You're not "outsourcing" it. The work is no different if it's done in India than if it's done in the next state. If it's not "in-house" it's still just work. Pointing out that it's being done somewhere else globally should not make a difference.

[Lara De Ubago-Sia]

Hello Phil:

The word "outsourcing" does give a off a negative vibe to employees of an organization that wishes to add offshore/outsourced staff to their company. Personally, I'd prefer the term "management partner" or if there is such a term "management partnering".

I work in a call center services company and we work very closely with our client-partners. To drive excellence and the number we need to succeed, both parties share the responsibility of rolling out and implementing plans that would benefit both the client and us. What I'm driving at really is that the actions toward excellence that are taken are managed by both parties with equal accountabilities and the same goals.

[Richard A. Law]

Hi, Phil

First of all, I think the primary confusion is between the terms "outsourcing" and "offshoring" -- two VERY different practices.

Outsourcing means hiring out an internal process, most often to a local company. This can be anything from staff augmentation to server hosting to hiring an accounting firm when you don't have the funds for a full time CFO. This can be done to get talent in place quickly that you don't have, to minimize a need for office space, benefits, etc., to prevent the dilution of company stock for a larger company that grants options to full time employees, etc....in many cases outsourcing simply supplements what a company already does and, most importantly, doesn't cost existing employees their jobs.

Offshoring on the other hand, is pure and simple about replacing more expensive local talent with less expensive talent elsewhere where economic realities are different. In the long run, I would argue that this doesn't often turn out to provide the savings envisioned, but that's a discussion for another day :-)

The real issue is that many, many people, including those in the media often conflate the two terms as one and the same which is a mistake that often causes confusion and suspicion, particularly when outsourcing is wrongly thought of as offshoring.

The long and the short of it, from the perspective of someone within an organization that is contemplating either, is that it sounds a lot different to say (no matter how you say it) "we're going to bring in some additional developers to make this launch" vs. "we're going to start sending some of our development work offshore to save money"

People know which you mean. And, coincidentally, customers notice when you do the latter poorly and without a very close handle on quality and timelines. Lead paint on toys anyone? Massive delays on delivering a certain "globally built" jetliner? Cost savings have to be sustained over the long run in concert with increased value....if you save money in the short term with cheaper labor costs but kill your customer relationships, I'd argue that the choice to offshore cost you more than you might have thought it would.

Sincerely,
Richard

[Bora Gungoren]

Inventing terminology does generate confusion and can sound more like marketing-hype.

After the great crisis of 1930s, people hated the term "business administration" because the office that did the lay-offs had that title. So business schools changed their name from "business administration" to "management". It was not until the 80s that many schools changed back.

So let us admit, outsourcing is outsourcing :)

[Michael Hillenbrand]

I have been working in the IT Services field as a remote dba provider for over 10 years, but I like to consider myself a provider of needed services, not an outsourcer. Whether you call it outsourcing, right sourcing, smart sourcing, etc, sourcing is still sourcing. Instead of displacing people by sourcing something, we provide a value-added and needed IT service. Yes, sometimes that service eliminates the need for internal staff, but that is not our ultimate goal or our intent.

One particular pet peeve I have with the term outsourcing is that almost always gets confused with "off-shoring". As many of you have stated, this is most likely due to the broad definition. However, according to an Information Week study from 2006, 75% of the money spent on outsourcing actually goes to on-shore providers.

Michael

[Matthew Bowie]

If you put lipstick on a pig, is it still a pig? Yes, and people may resent the new label.

That being said, I echo the sentiments of others here in giving specific labels. Outsourcing is a very broad term. If you can give something a label, and it more specifically describes what you are doing, this seems to be the optimal choice.

However, maybe you should also target the root cause: Staff's reluctance to outsource. They probably don't realize how much they do it professionally and personally. The focus should be on getting them to agree that in certain functions, outsourcing can be the easy-to-see superior option... then close the deal.

[Curtis Bragg]

I've come to learn over the past 20 years from being involved in outsourcing in every vertical market imaginable that it doesn't really matter what the provider calls it - but to pay attention to a) what the customer calls it (as it tends to define the engagement) AND b) to the type of culture the customer has created: if the customer has a culture of mistrust, it doesn’t really matter what you call it, staff will fear your presence.

A few other comments:

 The customer that says outsourcing but then like the patient that tells the doctor what prescription to write, tells the provider EXACTLY how to provide the desired service should instead be talking about out -tasking or contracting.

 Likewise, the customer that talks about contracting but leaves it to the provider to define an effective way to meet the customer’s objectives really is talking about TRUE outsourcing.

 TRUE outsourcing is about innovation, not replication; it is about a strategic initiative not tactical abdication. It comes about through a dialogue process not a bid spec.

Nevertheless, in the end, it is as much about how the customer company approaches the process as it about what the provider calls it.

[M. Ali Nasim]

Phil,

I would agree with the term "sub-contracting" at one hand, while disagree on another. I think "OUT" in the word outsourcing creates the most issues - as it somehow makes you feel as if the processes are going "out" of the control of the organization - existing human resources will be thrown "out" of the company, and somebody "out" of the planet will be tampering with your organizational security.

The word sub-contracting and esp. "sub" gives your team the confidence that the lower value work is being delegated to a vendor, which is not as important to the company as the work that they're doing is.

However on the flip side, the outsourcing provider being called "sub-contractor" might not feel that good and might perceive the work sub-contracted to be of lower-value and not be maximally motivated.

On whatever business objectives you base your outsourcing decisions on, your vendor selection has to be focused on the quality of the team you're going to work with not the cost minimization alone. (else in a short while you'll find that Tom in your inhouse IT team laughing at your face on making a wrong decision)

When it comes to offshoring, I see it this way:

Pay a person $7k per month in US and he'll be reasonably motivated. Pay a person $3k offshore, and he'll be highly motivated. Now if you manage to find the skills of the offshore resource equal or greater than your onshore one, then you've got a REAL outsourcing success story (not just that you saved $4k per month but got the additional motivation to produce oustanding results), but if the offshore resource skills are not at par or atleast comparable to the onshore one, you're wasting $3k per month per resource for nothing.

Btws, when I say skills, I don't mean technical skills alone, but equally importantly communication, business analysis, project management and end-to-end delivery skills.

M. Ali Nasim

[Richard Elkins Jr.]

I often use the word subcontracting instead of outsourcing. Subcontracting seems to be not as harsh to some people. Often new jobs which are higher paying are created to manage the new partner. The front line workers are the ones taking the hit but often the new partner will absorb the employees.

[david]

I think that, over time, "outsourcing" will become obsolete as a term simply because a mixture of "local and distributed human resources" will be so ubiquitous.

[Tom Hickman]

IMHO, focusing on clever ways to spin outsourcing to your remaining badged employee base is a semantic trap. If you've hired well, your staff will be smart. Smart people generally figure out what's going on. So I've always tried to be very up front with people about the business drivers behind sourcing partnerships. If you outsource work, you ultimately do it for one of four reasons - faster, cheaper, better, or closer to your markets. Making this clear and well understood to your staff pays you back by reducing the FUD within your team.

Call your outsourcing programs whatever you want. I generally prefer "outsourcing" because it's simple and well understood, but I use it interchangeably with "global sourcing." More important than the semantics is the need to be clear and direct about the business drivers behind your sourcing decisions. Explain your business drivers to your staff, and your partners. Establish a well articulated governance model that makes performance of the outsourcing partner measurable and transparent. Lastly, make it clear to your remaining staff that the partnership is now part of the new definition of "team."

If you do this, you have a chance that your badged employees will embrace the outsourcing partnership. If you don't, you'll have a tough up-hill battle winning them over.

Similar to Phil, I blog on this topic frequently, at insideoutsource.blogspot.com.

There are a few links I'll add to entries that are tangentially related to this question. Read and enjoy.

Links:
http://insideoutsource.blogspot.com/2008/04/first-fear-then-hatred.html
http://insideoutsource.blogspot.com/2008/03/its-us-or-them.html

[Jeff Mowatt]

I can relate to this from a wide range of experiences over about 25 years in the UK when a group of major players started to accumulate IT services contracts in the public sector. I can remember at that time being astonished at the sums being bandied around, in terms of millions. Recently I was just as surprised to learn that the outsourcing of IT for UK Post Offices works out at a billion UK pounds a years.

On the other side of the coin as a direct supplier, my trivial contract with them for £400 doesn't get paid.

With them now entrenched firmly in government, I find myself dealing with fiefdoms who demand of me free consultancy, one having come between me and a government customer toterminate my contract for not having responded to their demands.

A friend who handles outsourcing for a major US bank told me (about 4 years ago) that their overall costs for outsourcing to India worked out at $600/day, exactly half the cost of hiring local expertise at the time. At that time, I knew that developers in Ukraine were being paid $200/month.

With my social enterprise activities in Eastern Europe I've observed how the first wave arrive to exploit lack of employment security and low wages. In one instance, a local single mother paid the minimum wage of $40/month with the promise of marriage, who was discarded in fovour of outsourcing her work as accountant.

Some of those I now deal with are using the 'managed services' tag, but that hasn't changed the attitudes to either paying on time or retaining a supplier relationship.

I understand the resistance, not least from people who want to keep their jobs, but from an attitude toward business that considers the greatest asset of of any company to be their own staff.

So, yes the word oursourcing is tainted, and deservedly so. Behind the rhetoric, invariably, there are those who want to maximise profit at the expense of commitment .

Jeff Mowatt

[Anil Gangaraju, PMP]

Phil,

Didnt have much to add to the discussion there. But seeing alternate words being thrown around to suggest outsourcing, I thought I would state this:

Satyam's Global Delivery Model is called Right Sourcing™. This term conveys the idea of providing a value-add to the customer in terms of best deliverables and ideal cost-benefit scenario.

Anil Gangaraju, PMP

[Dr. Vinoda Nandicoori]

I was going through the responses on this topic various experts. I tend to agree with Prof. Girish on this subject. It is purely a make or buy decision for an organization. There is never a challenge when we make such decisions in manufacturing as it is accepted way of doing business. But when we do the same in blue collar jobs, the impacts are signficant. In the first instance, the labor cost to the product is hardly 30% whereas in the blue collar process the labor cost to the service is more than 70%. Job displacement ratios are signficantly different and hence we see a lot of heart burn when we talk about and implementing outsourcing. There is no point in coining a new term for outsourcing as the bottom line is that we are moving work outside and people will lose their jobs.

We have to ensure that we engage the people affected by the decision early in the cycle and work with them to ensure that organization as well as individual requirements are met as effectively as possible.

[Tom Field]

Phil:

I think you're right. No matter what term you might want to use, people are smart about sniffing out "outsourcing." So, perhaps it's best to use that term from the get-go & not get caught up in an argument over labels.

And I also agree with your approach: Be upfront with people about the decision and what it entails. Ultimately, people care about one thing -- 'What does this mean for me and my job?' Try to answer that question as best you can. If your outsourcing vendor has a history of absorbing staff and retaining them, then trot out some good examples for your own people.

Outsourcing is a tough discussion no matter how you slice it. But if you're up-front and honest all the way, then at least you're focusing on the *real* issues and not the ones that uninformed minds can fabricate.

best,

Tom

[Sameer Bhatia]

Suggesting one specific word for all outsourcing projects is a difficult task & may not meet expectations of all.

You can use the word "Rightshoring".

[Mark Stelzner]

Interesting post Phil. I think we should start applying the acronym "WSL". I've met with several heads of function who say, "boy, we really suck at (insert required outsourced service)". The answer from the provider? We Suck Less. With enough repetition, WSL will really take the world by storm.

By the way, I hope the sarcasm is coming through loud and clear. :)

[Phil Fersht]

Vikul:

A shameless sales pitch, but great points... so I'll let it ride :)

Phil