Product Management Library of Knowledge
The Threat of Services Outsourcing Is Good for Services OrganizationsThe Threat of Services Outsourcing Is Good for Services Organizations!
by Jim Alexander and Mark Hordes, Alexander Consulting, LLP
It's 5 p.m., and Lou Dobbs is on CNN telling his listeners once again, 'Beware of the evils of outsourcing-the big, bad wolf is going to get you if you don't watch out!' This is pure baloney. Lou is a sharp guy, but in the case of outsourcing, he is dead wrong.
Here's why. All offerings, whether products or services, eventually will become commodities. Smart organizations plan for this obsolescence and focus their development and marketing efforts on value-adding, customer-wanting innovations. In the majority of cases, these innovations are services. While we believe that the decline of manufacturing to the American economy, although painful in the short term, will help America in the long term, outsourcing is done primarily for efficiency and workforce capability purposes.
Outsourcing exemplifies classic Darwinism-the survival of the fittest. This has been going on in industry for hundreds of years. Although very painful (especially if you are one being outsourced), it is vital to maintaining American competitive advantage. The move to manufacturing to China and certain services to India, for example, makes the U.S. stronger, as it forces us to concentrate on offering only services that companies need most. Politicians (at least some of their advisors) know this. They just play into emotions and days past.Ponder Points
Every services executive should ponder outsourcing and the potential impact on the business. It is too prevalent a practice not to devote some time and effort to its consideration. We recommend that any business that offers services should do a 'fast check-up' to get a good understanding of both the outsourcing threat and the outsourcing opportunity. This check-up can help give you the answers to a few key questions. A fast check-up can be completed successfully in 30 days as you interview customers, executives, and employees to capture their perceptions, feelings, and ideas related to outsourcing. Examining the external competitive landscape is also critical, so it is imperative that you do some market intelligence research as well.
You never want to be a follower of services behind your competition; always strive to be the lead dog and have competition chasing you. And lastly, it's always best to have a list of services and outsourcing best practices available to compare your organization against so that you accurately can gauge how big the gap and challenges really are before you charge forward.
Here is what our clients are asking:
1. Should we outsource many, if not all, of our services? And what impact will doing so have on our ability to continue to provide high-quality services and customer satisfaction?
Outsourcing has benefits as well as some obvious risks. The main benefit is what we refer to as strategic 'cost leadership.' You certainly will save money, and the economic model is strong when you operate from India, Russia, China, or the Philippines, where wages are about five to 25 percent of what they are in the U.S. However, your customer satisfaction may suffer when difficulties arise-such as a lack of responsiveness to problems, a poor understanding of your services, or even a lack of basic communication skills-when customers call in for assistance. These classic problems have forced several companies that had outsourced their services to pull back from the fire (Dell as an example).
2. Do we have the right services strategies and services offerings in place to be highly competitive against our competition in the global arena?
As we highlight in our book, SBusiness: Reinventing the Services Organization, if you want to capture domestic and global competitive advantage in the services market, you need to think about four strategic options for your services: vendor, specialist, total solutions provider, or game changer. Select the right strategic option, and competitive advantage will follow. Choose the wrong one, and you will take one step forward and six steps backward. If you are a services executive (especially one in a product company) who is considering services outsourcing:
- Learn about the impact that outsourcing can have on your services and consider the potential for profitable growth and sustainable customer satisfaction and loyalty.
- Put your executives through a 'competitive review boot camp' to build strategic and business development muscle.
- Review all of your services offerings to ensure that you have the right portfolio that customers will value and, hence, buy.
- Validate your services value outsourcing proposition.
And lastly-pray a lot. Although this dictum is not in many strategy business books, a little help from this camp really can be of benefit.