re: Outsourcing & margins

I couldn’t hold my breath any longer. I tried, I really tried but the last post on Outsourcing took the most interesting bit, shoved it off to the side and asked it to catch the next bus home.¬† I’m talking about the “Margin” part of Outsourcing & margins.

Now I know Newman is heavily biased on the “Infrastructure” part of his world, but I come from a little town where you didn’t buy stuff you couldn’t use effectively.¬†¬†You call it infrastructure, we call it “stuff”.¬† We drive pickup trucks not because they’re cool but because they have utility: as a snow plow, hauling trash, parades, hay rides and general gittin’ ’round.¬† All of that while laughing at people who buy fully loaded dualies for commuting.¬† It happens.¬† I could never see myself writing an outsourcing contract that lost money just on this experience alone.

Making the connection yet, James Burke?¬† In my experience, these outsourcers get into trouble because they forget three things…

  1. What you’re supposed to do with all that infrastructure
  2. HOW to do it, and
  3. How to write a contract to support it

Newman touched on the third part there, which I’ll get to in a moment but the first two just demand more air time immediately.

I’ve seen too many outsourcers allow themselves to get bogged down trying to use every single feature on some gear without any focus on why they’re doing it (they get pushed around a lot, I have noticed).¬† Perhaps the inclusion of some buzz words in the proposal closed the deal, but at what cost?¬† Some manage to stay afloat or get ahead but most don’t have the skilled talent on hand to pull it off.¬† It is tough staffing the top 10% of industry folks on every job.¬† 90% of the time you have lesser talent.¬† The solution here is to frame up the services and support you will deliver in light of your available talent, ability to standardize complex activities and the strength of your plan-B should things go wrong.¬† The customer should NEVER see the outsourcer fall down on service levels.¬† It is death to your business.

On the other hand, too many of them ask “what’s a service level?”¬† That’s the contract conundrum.¬† If they could teach themselves to write better service level agreements tied to real world metrics these problems would be trivial to solve.¬† I’ve seen several contracts where the language for change orders and “extra” services conditions is longer than the actual service definitions for what WILL be performed!¬† What the heck are you people thinking?¬† Put a box around what you’ll do and with what equipment you’ll do it based on a real need from the client.¬†¬†Write that need down.¬† Put equitable performance penalties around both sides of the deal and manage to the service level, not the contract.

I know that last part sounds contradictory but if you can maintain your availability, ticket turnover and performance metrics fewer people are going to ask you to do things that “uh, sorry, we don’t support”.¬† Know what your limits are, use the equipment the best way you know how (don’t stretch it) and let your people find their way to meeting the requirements.¬† The bottom 90% are still some pretty damned smart folks.¬† Left alone to establish repeatable methods and standards they perform exceptionally with little waste effort.¬† Yes, Average Joe can pull this off with some basic controls.

All that, and what Newman was saying.

On the other hand you people can continue to write contracts that demand 75 hours a week from your best resources just to break even.  Knock yourselves out.  Meanwhile I need to take a look at a new truck with my father.  Should be fun.

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