CXO

Secret to successful outsourcing: Be open about your ambitions

One side in outsourcing should never benefit at the other's expense...

All the sales talk about outsourcing partnerships is meaningless unless both sides are open about what they really want from the deal, says Mark Kobayashi-Hillary.

I'm often asked about the lessons I've learned from working with people on both sides of outsourcing deals over the years. I expect the people who ask this question really mean, 'How do you do outsourcing well?', rather than 'What has outsourcing taught me?'. But both are valid questions that merit discussion.

First, what has outsourcing taught me? I've learned that a 21st century business needs a global outlook. Skilled people are located all over the world, and any firm seeking to remain at the top of its market needs to find the right skills, wherever they are. It's almost impossible to find a business that now has staff, customers and other resources all drawn from a single location.

That situation does not argue for blind support of offshoring. It's just an acceptance that companies are searching further afield for staff and customers than ever before.

outsourcing globe

What is the secret to successful outsourcing?
(Photo credit: Shutterstock)

Secondly, what have I learned by being involved in outsourcing specifically? Well, the most important lesson is that partnership and shared objectives are the only way to make companies work well together. If you have different aims or ambitions, or your true intentions are hidden from the partner, whether buyer or seller, then it just can't work in the long term.

That requirement might seem obvious but it's why so much outsourcing ends up either failing or just not meeting expectations. Even when the formal expectations are met - the service level agreements - there is often a sense of disquiet over problems that exist but which were not documented in the contract.

Making partnership work is about aligning the expectations of the customer and supplier. They both need to be rewarded for doing the right thing, and a contract needs to be structured that way. But finding that balance is not easy because it needs a lot of thought - much more than just writing a basic service contract that says, 'Do this and I'll pay you'.

There is a strand of mathematics called game theory, introduced to many non-mathematicians by the Russell Crowe movie A Beautiful Mind about the troubled life of mathematician John Nash. 'The prisoner's dilemma' is a famous exploration of how fiendishly complex game theory can become:

  • Two suspects are arrested by the police. The police have insufficient evidence for a conviction and, having separated both prisoners, visit each to offer the same deal.
  • If one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the one who remained silent lands the full 10-year sentence.
  • If both keep quiet, both prisoners are sentenced to only six months in jail for a minor charge.
  • If each betrays the other, each receives a five-year sentence.
  • Each prisoner must choose to betray the other or to remain silent.
  • They are both told that the other would not know about the betrayal until the investigation is over. What should the prisoners do?

Nash gave us the idea of a zero-sum game, a game where a player can only win by forcing their opponent to lose. That's not how good company partnerships work.

If both companies are open about their intentions, then it's possible for both parties to win more by working together than by working alone. So a little more transparency about what both sides want from a deal, rather than sales talk of 'partnerships', is what is really needed.

Mark Kobayashi-Hillary is the author of Who Moved my Job? and Global Services. He lectures at London South Bank University.

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