You want fries with that?: Beyond Blinking Lights and Acronyms

Let's talk about the "O-word", outsourcing. I recently ran across 2 news stories with a new (at least for me) twist on outsourcing. The first was in regard to the fast food industry outsourcing the drive-thru order taking. A USA Today article describes how Wendy's, a hamburger restaurant chain, has outsourced the drive-thru order taking to an outside firm. They use phone lines and Internet technologies to take your orders remotely. Seems like even a high-school, minimum-wage job isn't safe from the possibility of being outsourced.

The second story was a radio report on NPR describing a California web site outsourcing local news coverage to reporters in India. The reporters have the city council "beat" and can watch the council meetings via streaming video on the web and prepare their stories from that with follow-up information obtained over the phone.

Both of these tend to dispel a couple of common misconceptions about outsourcing.

The first myth is that outsourcing is all about low wage cost. The logical extension is that if you want to avoid being outsourced you have to be very cost-efficient. I'm sure Wendy's may have saved some labor cost but I doubt that savings involved in this case where that significant. In doing some research on this I came across a November, 2006 Boston Globe article about Wendy's outsourcing. I was somewhat surprised that some of the advantages they found included:

The average transaction time improves
"Up Selling" of extras increased (a 12% increase in sales)
Reduced theft

These kinds of things far exceed the labor savings.

The second myth is that only back office functions that don't deal with the customer or vendors can be outsourced. As the reporter story points out sometimes the front line workers can also be outsourced. Even customer facing functions are outsourced such as the Wendy's order taker.

Although I haven't seen a recent news story on it the third myth is that you can't or shouldn't outsource your manufacturing or production operations. I know of cases where all the manufacturing operations are outsourced. "Virtual manufacturers" outsource many if not all of the manufacturing functions and sometimes even the assembly of the outsourced components and the company only markets and sells the product.

So is there anything that can't or shouldn't be outsourced? The answer is yes - your core strategic functions, your competitive advantage. The problem though is that what is core can be different even among competitors in seemingly identical businesses. In Wendy's case it is quickly providing food of a consistent quality and not order taking. In other restaurants the order taking process is core such as the Magic Time Machine restaurant where the order taker is the "show" that you go to see. No one goes to Wendy's because of their order taking ability. Conversely at Magic Time Machine the order taking process is a major element in the dining experience and is a major factor in why people go there. So being involved in order taking in food service may or may not be core.

The good news is that the outsourced functions are also "core", to the company providing the service that is. In the Wendy's example the order taking function isn't core to Wendy's but it is core to Alpha Telemarketing the company providing the service.

So what parts of IT are "core". For many companies the answer is limited to simply the development of custom, proprietary systems and not all companies have that. What this means is that much and sometimes possibly all of IT is a candidate to be outsourced. The smart CIO will recognize this and distinguish between what is core or not core get buy-in from the executive management and then manage the outsourcing process. By "manage the outsourcing process" I mean evaluate the functions that are outsourcing candidates and see if outsourcing makes sense from an operational and financial sense. It doesn't necessarily mean that you outsource it simply means that you evaluate it and make a sound defensible business decision. If you don't do it you can bet someone will eventually do it for you and you just may find that they've determined that the CIO role is not core.

At this point I'm sure someone can't wait to tell me of all the dangers of outsourcing and cite examples of major outsourcing disasters. And they're right. There have been many outsourcing horror stories. My only comment to that is that you should look at how they were done. In most cases it wasn't that outsourcing was a bad concept it was a good idea that was implemented poorly. A bad implementation is not the same thing as a bad concept.

What are your thoughts? What's your experience with outsourcing?

French Fries photo by udono

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