Outsourcing ain't no lie!

A lot of people have been talking about the post Dave Rodenbaugh recently wrote on his lessonsoffailure.com blog, The Outsourcing Low Cost Lie.

I flat out disagree with what he is saying. His examples are so full of failure that I think Dave has ignored the many outsourcing success stories that are out there.

Let me recount two outsourcing success stories that directly affected my life:

Example 1: Successful outsourcing of internal IT:

In the 1990s a major telecom company realized that their executives were incapable of managing IT well. The management had created an IT organization that couldn't get anything done and was literally preventing the company from being able to innovate. Sadly since big companies are incapable of firing people, there was no way to get rid of the problem. By outsourcing their global IT organization, thousands of people were given the opportunity to join the new outsourced IT provider or quit. The strategy of outsourcing IT was a big success: the dead wood was no longer on the company's payroll.

Before you ask, let me explain:

  • Isn't it true that the new contract ended up costing more than their old IT costs. Irrelevent. The goal wasn't to save costs, the goal was to eliminate an unproductive IT organization.
  • Isn't this equivalent to handing your smart people over to outsourced provider, who happens to be a competitor in other areas? Not at all. The smart people saw this as an opportunity to leave the company completely; the outsourced company didn't get them either.

The proof is in the pudding. When the outsourcing was complete, the executive that was in charge got a huge bonus and left the company. Did YOU get a big bonus for not outsourcing your IT?

Further proof: A few years later when the company went out of business I read every press account of what killed the company. I assure you that zero of the press accounts attributed the cause to this outsourcing process. They attributed it to the company's inability to produce products that customers wanted to buy. I see no correlation.

See, Dave Rodenbaugh? An outsourcing success story.

Example 2: Outsourcing code development to India

A new CEO outsourced development and operations of a complicated software system
to a company in India. By eliminating the entire development staff from the payroll as well as the operational staff that used the software, he was able to demonstrate (on paper) that his company has almost no operational costs yet was making a profit. This
impressed potential buyers enough that he was able to sell the company and personally pocket millions.

You might ask, "isn't that unethical?" or "Didn't the new owner then realize they had bought a lemon and have to find and rehire the original developers?" The answer is simply, "no". No, they didn't have to. They could have been buying the company to eliminate a competitor. Companies do that all the time.

How can I call this a success? Well, let me ask this: Did YOU pocket millions of dollars after the sale? Heck, I bet you weren't even one of the board members that profited because he owned the outsourcing company in India.

So, Dave Rodenbaugh, if that is your real name, now that you have read my two counter-examples are you still prepared to advise against outsourcing? Maybe the problem is that some managers are better at business than engineers are at engineering.


Update: Dave replied pretty quickly and I realized that I hadn't made it apparent enough that this piece was in jest. The stories are true, but documenting the "success" of one company that went out of business, and another that unethically made money for the CEO is not intended to be anything other than sarcasm.

Posted by Tom Limoncelli in Sarcasm

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7 Comments | Leave a comment

If you define success as making bank and walking away, I suspect that outsourcing is often very successful.

I can't argue that it's probably a good step for eliminating a unrecoverably dysfunctional IT organization, one that would cost more time and energy to rehabilitate than to replace wholesale.

Still, I worry that the economics of outsourcing follow the same pathological model as other short-term finance-first measures which are oversold to those who are affluent enough to insulate themselves from the consequences of their decisions. Make bank and walk away.

Well, two examples of success are nice. But that still doesn't discount the large number of failures that currently exist, and that continue to happen on a daily basis. What we need to have a productive discussion here is the ratio of success to failure. I still argue that ratio is much much less than 1, and probably not even close to 50% or higher.

What you argue is interesting--that outsource success isn't defined by cost savings. My counter-argument is that this reason is the #1 choice amongst IT managers for trying it. As I noted in the post, 82% of IT projects that outsource are trying to save money.

And yes, that's my real name.

Dave, please adjust your sarcasm detector. My two examples were anything but nice.

LOL...you know, for as much as I have to explain sarcasm to my daughters, you'd think I'd have a better handle on it. Best throw the post into a sarcasm tag. :)

I consider my BS detector to be on high alert whenever I read something on the Internet, however this post really didn't trip it at all. Thanks for the update with an explanation, but the tone of the post is still not clear what you're trying to say here.

Man, I'm thick. I totally missed the 'sarcasm' tag. :P

I know you in person, and even I was fooled. DIdn't detect the sarcasm.. I just disagreed w/ you, and was thought you were dead wrong & being stupid :)

The first case might be possible, for certain things. Outsourcing certain non-core functions to a specialist is not a bad thing sometimes. Desktop support w/ dedicated onsite staff may be more effective. We outsource accounting/payroll tasks to ADP & Paychex all the time.

Any critical product dev- no way. There was a recent article that touched on this from the VC side, http://www.bothsidesofthetable.com/2010/07/05/the-power-of-in-person-why-distributed-teams-are-less-effective/#more-2903

Small non core products that have a a solid spec can be outsourced, but anything core to your business should be internal.

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