The tendency to take on unsuitable work

In 1995 I was asked to talk to the management of a publishing group that claimed to be interested in outsourcing all its non-core functions. Most of the senior executives were at the meeting, with the exception of the chairman. During the first few minutes it became obvious that the chairman was the main instigator of the potential outsourcing project. It was also clear that roughly half of the directors present wanted a serious investigation to take place but the others appeared to be going through the motions.

Prior to my arrival they had agreed amongst themselves that it would be very beneficial in terms of limiting disruption, if one provider could take on all these non-core functions. I pointed out that the key reason for outsourcing was to take advantage of specialists in each function. One of the directors then introduced the name of a well known service provider and consultancy and although admitting no prior contact with the organization, expressed the view that ’they must have specialists in every conceivable business practice’. Despite my doubts, I was asked to contact the major provider and seek clarification that they would be willing to take on all the functions. I was asked not to divulge my client’s identity at this time.

Amongst the functions being considered for outsourcing were finance, IT, human resources, the design studio and telemarketing. I was therefore, quite surprised when my contact at the major service provider came back to me stating that ’subject to the work not containing too many surprises, they saw no problem with taking on all the functions listed’. The only qualification was that they reserved the right to sub-contract certain functions to other suppliers if all parties deemed that beneficial.

The publishing group quickly gave up the idea of outsourcing and I am pretty sure that they have not given it serious consideration since that time. I cannot be sure that the offer to take on all the functions was the deciding factor but I am sure it played a part in the final decision. One or more of the directors concerned probably considered it a triumph of defensive tactics, whilst others would consider that the service provider got the just reward for greed.

Many providers would argue that greed does not come into the equation at all. Their justification for this view is that after a while the provider’s core competence becomes the supply of an external service, whichever business processes that might involve. Certainly, there is evidence that providers have sometimes picked up work that was new to them, then got other similar work on the back of it and eventually became competent specialists in that work area. Anyone who has been party to the range of processes and functions passed by government departments to individual private sector companies will confirm that this has happened quite frequently.

Nevertheless, for an outsourcing service provider, irrespective of size, there must be a significant risk that venturing into too many business areas will reduce the chance of it maximizing its performance in any one area. Any client organization seeking a service provider for outsourcing would be wise to look at where their potential providers are positioned in this respect.

It is important to make a distinction here between service providers taking on related functions, which is inevitable and unlikely to weaken creativity and effort, and unrelated functions, which could result in such weakness.

An example of related functions can be found in the insurance industry, where organizations like the Eastgate Group and Hampden Plc provide a mixture of IT, finance and a variety of insurance process services for companies in both run-off and start-up mode. Both these organizations became service providers as a result of the collapse of a number of Lloyds syndicates in the wake of the asbestos claims crisis. Effectively these syndicates were put out of business but they had to keep functioning to pay off debts. In a situation where there was no future remaining in the syndicates for ambitious executives, both companies were formed to take advantage of the situation and started covering all the related functions from day one. As a result both organizations have the experience and background to offer both finance and IT services to medium sized clients both inside and outside the insurance industry.