Outsource Management?

Outsourcing—hiring contractors to do work traditionally performed by regular employees—has long been in vogue in corporate America and, increasingly, in government. Indeed, the bad old days of KP (kitchen police) duty for misbehaving privates—a staple of Beetle Bailey cartoons and Gomer Pyle, U.S.M.C. TV shows—seems to have vanished with K-rations and Sam Browne belts. Today, contractors prepare military chow, provide security for U.S. diplomats, and even fire rocket-launched grenades at enemy forces.

At civilian job sites, contractors have long mowed the grass, cleaned latrines, walked security beats, serviced the copiers, and the like. Some management analysts argue for much greater and deeper use of contractors in place of employees. Businessman Randall Hatcher, for instance, pushes the outsourcing mantra as far as I have seen it go in his new book, The Birth of a New Workforce: 21st-Century Strategies That Will Revolutionize Your Business (Pursuit Books).

Outsource Non-Core Functions

Hatcher advocates outsourcing most human resource functions, finance, and accounting tasks short of strategic financial planning, purchasing, IT, maintenance, public relations, and, in many cases, even assembly and subassembly operations for manufacturing companies. Let it be said here: Hatcher is in the business of persuading companies to outsource and then providing the outsourced functions through his firm, Management, Analysis, and Utilization Inc.

Despite his obvious personal and financial interest in seeing that you outsource most of what you do, he makes some good points. His focus is on what he describes as "core functions," which should not be turned over to other companies to perform. These are not necessarily the tasks that you and your organization perform well but the tasks that are central to your final product. He offers the example of one of his company’s customers who makes paper. What are the core functions for this firm? The CEO explained, "It’s those jobs that touch the paper."

According to Hatcher, "Large companies are very distracted because they are still keeping their hands on too many of their non-core processes. This diverts their time and resources, which if redirected, could help them improve their innovation, efficiency, mergers and acquisitions, and in general, their focuses on what is more important in growing and staying competitive for the next 20 years."

Hatcher’s ideas are heretical. He argues, for example, that ‚"to create and sustain success in our current business climate, leaders must be willing to terminate full-time employees—even those at the top." Yes, Hatcher is saying, "Let’s fire the managers." Managers need to be looking for solutions, or looking for new jobs, he argues.

That is a sentiment that many, myself included, find pleasing. I’ve known plenty of bad managers in my day, folks who were empire builders at the expense of organizational goals, folks who feared that others might discover their job was not being done very well, folks who had retired on the job at full pay. Goldbricks, malingerers, con artists, I’ve seen them all in management garb, even CEOs.

Outsourcing Brings Added Risks

But before you go out and start looking for other firms to take on what you have always thought were inherently internal tasks, and before you fire the managers, be very careful. At the same time the Hatcher book came across my desk, so did a study by ESI International, titled "Risky Business: Organizational Effectiveness at Managing Risk of Outsourced Projects." It offers a Hatcher antidote.

The ESI report notes, "Organizations are overwhelmingly committed to outsourcing services in order to realize benefits not achievable in-house, with significant percentages of firms outsourcing core applications, systems, and functions." Of the more than 600 managers involved in outsourcing decisions that ESI surveyed, IT was a leading target for outsourcing (68%), the report says, followed by operations administration (28%) and customer service (27%).

What did the survey find? Here are the key results:

• Fewer than half of the organizations were"able to effectively manage a risk of outsourced projects." ESI found a "need to refine risk management capabilities in order to positively impact bottom line performance." Some 45% of the organizations ESI surveyed reported that they "lack a strong risk management culture" in their organization.
• "Organizations don’t always clearly define business requirements with outsourcing projects." This "hinders communications‚" between the company and the vendor, says ESI. The report says 75% of the organizations "do not always clearly define requirements of outsourced projects," a finding that should give pause to those considering parceling out key functions.
• "Vendor management issues" are among the top concerns of corporate risk managers, particularly issues related to vendor performance under the outsourcing contract.
• Those managing outsourcing say they need training and information on risk management that is focused on ensuring quality in the final good or service the firm produces. Only 11% said they believe they "excel over their competitors in outsourcing projects."

Outsourcing probably isn’t the panacea that Hatcher paints it, based on ESI’s study. So be careful when considering turning over work to those outside the organization. That doesn’t mean don’t do it. It means do it wisely.

As for firing the managers? Well, that still warms a spot in my heart. Impractical? Maybe, but it sure feels good.

—Kennedy Maize is MANAGING POWER’s executive editor.