Getting past the “O” word
Funny thing. Marketers have been outsourcing stuff for years. But we never called it that. Instead, we just picked up the phone and rung up those nice (and creative!) folks at the agency. So recently, we’ve been thinking about what other marketing functions might be right to hand off to an outside partner and why.
If you’re HP, you may have 400 people responsible for analyzing customer interactions and doing root-cause analysis. But if you’re a smaller player, it’s more likely that you can count the people in your company who handle these functions on one hand.
One-handed functions like these are ripe for outsourcing. Functions that are outside of your company’s core competence should be offloaded to outside partners, wherever possible. Look for partners that can provide you with:
Access to talent you can’t hire internally
In the knowledge economy, access to talent can make a big difference. Think of GE, which has grown some of the best and most capable management talent of our generation. Many of the talents you need, aren’t available to hire in the traditional manner. A headhunter friend of ours said it best. “One of the side effects of the Internet boom is that it reduced the talent pool. Highly talented people either made their money and are now retired or decided to take the plunge themselves and become free agents.”
Outsourcing takes costs that were once considered fixed and turns them into the most variable part of your budget. You can scale up or down as need be to meet changing economic conditions. The corollary of this is also true. Be wary of any firm that makes you commit to payments and/or staffing levels before you have a true need. Business conditions can and do change in a nanosecond and the best firms to partner with are those that can adapt to these changes with flexibility and grace.
Consider the situation where you are thinking about bringing one analyst in house to build and maintain a set of marketing analytics for you. This person will be working solo, without anyone else in marketing doing anything remotely similar. This looks like the cheapest way to get the job done – but buyer beware. There are some hidden costs that need to be considered. For example, higher turnover. To move up, the analyst will have to “move out” of the organization. Each time an analyst leaves and must be replaced, you will have to rebuild the formal and informal knowledge acquired in the job from scratch.
Access to best practices
Look around your organization and it’s likely that many of the people who work for you today worked at one of your competitor’s yesterday. So, in all likelihood, you know a lot about how your competition is handling the various business challenges facing your company. What you don’t know is the types of challenges facing businesses that are completely different from yours. And what you don’t know can and will hurt you, especially in today’s environment where limited visibility seems to be the norm.
Offsite but not out of mind
We are not enamored of companies that put “their people” at “your site”. The net result is to transfer facilities costs from the professional-services firm to you, the client. You’ll end up paying for this in more ways than one. Once people work day-in and day-out with you, they lose their objectivity. Productivity gets reduced as the consultants you hired start to spend more time working the organization then they do working through the business issues of interest to you.
The quality of the consulting also suffers. Associates at the firm who spend the majority of their time at the client’s location can’t help but lose out on the many supervisory and training opportunities that can only happen when a bunch of people work together side-by-side and have ready access to people more experienced than them. Today, there is no real reason why people who work together have to do so from the same physical location. The technology to break down barriers of time and space is readily available – in the form of video conferencing, web-enabled meetings, and extranets to share documents and WIP.
What about cost savings?
Increasingly, when you call Sprint or Microsoft the nice person on the end of the phone is likely to work 12 time zones away, out of a call center located in Bangalore, India. The best companies in the field train their people to speak “Americanized” English and offer their clients substantial cost-savings over the cost of handling the function in the US, say with a call center in Sioux Falls, SD.
Our take on this is that any cost savings that derive from outsourcing will be short term at best. Already the Internet has made it possible for knowledge workers to work from anywhere. As a result, the United States has seen both real wages and real estate prices become increasingly homogenous. Where once the cost of living was highest in the larger metropolitan cities on the two coasts (LA, San Francisco, Washington DC, New York, Boston) this is no longer the case. Over the past 5 years, the differential between the cost of living in Sioux Falls, SD – for example – and Sunnyvale, CA – have moved closer together. Likewise, real estate prices have migrated up in Sioux Falls and down in Sunnyvale. Economists tell us that this is a real trend, that increasing globalization means that standards of living – and their concomitant costs – in India must inevitably migrate towards the mean. Which means that the company you outsource today that resides halfway around the world will eventually become no cheaper than handling the function closer to home.
THE REAL REASON TO OUTSOURCE
Not so much to save money but to gain expertise
As Bangalore becomes more and more a place dominated by technology-service providers like Widpro these companies will develop a knowledge base and expertise that cannot be duplicated. This will give companies like Sprint and Microsoft an even more compelling reason to continue to outsource functions: to access expertise not available internally.
We think this makes a lot of sense. Functions ripe for outsourcing include those that are people (and therefore cost) intensive like support. But let’s not forget those functions that are highly specialized and therefore thinly staffed within any particular company. It makes sense to outsource these functions – not to save money but to gain access to a broader skill set and the expertise that comes with specialization and scale.
- Outer Limits
- The New Face of Global Competition
Originally published on Firewhite Consulting site, 3.03.