Leadership & Business: It's Time to Insource

As is typical of American industry, once again we’ve allowed the pendulum to swing too far. That’s ok. We just have to recognize when it happens. It’s our nature to be passionate, even if sometimes passion leads to irrational exuberance, to use a new cliché.

This time the pendulum that’s swung too far is the one that says “outsourcing” on it. That’s all you read about: outsource to China, outsource to India, even outsource domestically. But given all the failures and unmet expectations, it’s time to reel in the irrational outsourcing exuberance and “insource” what matters most.

Just ask Dilbert
A cartoon depicts Dilbert walking into a colleague’s office saying, “I have some disturbing news. We outsourced our customer service function to India a few years ago. Apparently they subcontracted the job to Mexico. Then Mexico subcontracted to Vietnam, who subcontracted to the Philippines, who subcontracted to the US.”

The cartoon continues with the employee saying, “It turns out that we are the lowest-cost provider because we lie about our hold times. In summary we pay ourselves to hose ourselves.” Then the employee asks his boss, “Are you thinking what I’m thinking?” The boss says, “We should raise our prices?”

Actually, like many of Scott Adam’s Dilbert strips, this one is a little hard to follow. Sometimes he hits the business world square in the head with startlingly truthful wisdom, while other times he skitters around the fringe of business reality with the acumen of a third grader.

But somewhere in the cartoon are a few good truths. One is that projects can and do get outsourced down more than one or two levels. Two, companies that outsource often end up hosing themselves. Three, we might do ourselves and our companies way more good by adding value (features/innovation), keeping certain work in house and raising our prices – especially now that we’re moving away from the same recessionary scarcity that sparked the first wave of outsourcing in the early 1990s.

Call Center Crazy
Take the commonly cited call center. It seems to me that in certain industries it might be time to invest in a system of service that revolves around real people, speaking clear-headed English, who are bright, lively and ultra capable of making a customer happy. We’ve got all this rhetoric about The Customer Experience, One to One Marketing and the like. Yet we can’t find anyone who can foster real Customer Loyalty by bonding with customers, regularly.

One thing’s for sure. People in India and China probably don’t know a whole lot about how to bond with your customers, as a rule.

Having said that, call centers still may be the perfect candidates for outsourcing, and we just need to outsource better. Or the companies who provide such services need to do so better, faster and cheaper. I really don’t know because I’m not a call center expert; if you are, I’ve probably lost you because you believe deeply in the reasons for why the entire customer service industry is in the can.

But before you run off, consider this, and don’t let me distract you into thinking we’re talking about call centers, because we’re not. We’re talking about why Insourcing is better than Outsourcing, in many circumstances. We’re talking about why the need to Insource, why even the existence of the word (which really isn’t a word), is a symptom of outsourcing gone awry (only in a world where outsourcing is so inappropriately prevalent do we need to “insource”).

Keep the core inside
Deloitte Consulting LLP conducted personal interviews with 25 large enterprises in a range of industries and found that 70 percent had significant negative experiences with outsourcing. One in four interviewees have brought functions back in house after realizing they could be addressed better internally. And 40 percent said they didn’t see any cost savings materialize from outsourcing. Hmmm.

Apparently outsourcing ignorance is not bliss.

Ask the Australian prime minister John Howard, whose Government’s IT outsourcing debacle is reaching a budget overrun of $1 billion after having been pitched as a solution that would save that much. Ask the state of Hawaii, whose attempt to outsource public library book selection has become a noted colossal failure. And there are hundreds more examples from the private sector except, you guessed it, they tend not to get publicized.

Here’s the thing. Outsourcing can be effective when done with the same rigor and insight as successful strategic partnerships (most fail however). But it’s not effective when a company tries to outsource a core competency, like human resource management or innovation. In any company, the ability to obtain, cultivate and retain human talent is unsurpassed on the scale of what matters. Most everything else can be learned, acquired, reverse-engineered or outsourced.

But outsourcing human resources capability for any company is like outsourcing sign making if you’re a sign maker. You don’t want to do that. If you do, you just become one big holding company with a portfolio of capabilities not unlike a big mutual fund that owns different stocks but can’t do anything beyond hope they perform well.

Insourcing what’s core and important is the tangible way of saying “enough.” I no longer trust my destiny to the Easy Way. I no longer view executive leadership and business success as a function of making smooth and cool decisions that make me feel shrewd, and make me look golden to my shareholders (at least until I can bail and go sell my slick self to some other gullible employer).

That’s when smooth turns into crunchy, because the truth is that the process of any business improvement worth its investment will be crunchy. That means a lot of people roll up their sleeves, take ownership, learn, struggle, fail, try again and stick together until the job is done.

Insource Innovation
So even though I’m an executive in a big company, I purposefully go into the bathroom and crumple up my hair. Then I come out and say, “You know all that talk we’ve been having lately about how important it is to be innovative? Well it’s time to make ourselves innovative, and it’s time for all of us to start walking the talk. So we’re canceling that contract with the ABC R&D company and we’re going to do it ourselves.”

Mind you, and please take note, we’re not going to insource R&D just because we can. We could also insource payroll, but we’re very happy to have payroll outsourced because it’s a distraction for us to put energy into performing such a rote and commoditized function ourselves.

No, we’re insourcing innovation because it’s a core competency that we must have, especially since everyone calls for innovation, praises innovation, swears by innovation – but no one knows how to do it. With such an incredible lever of competitive advantage staring us in the face, why are most content to give control of that lever to the so-called “experts?”

Fear and paranoia that if we try to do it ourselves we will fail.

Why not turn the fear and paranoia inward and say, “As long as we’re so afraid of innovation, and as long as it is so, so very important, let’s learn how to do it ourselves. We need to stop outsourcing core competencies like R&D just because they’re hard or because we perceive that someone else can do them better.

That would be like turning over the task of raising your children to the schools, even though when it comes to education this is exactly what most parents have done, by definition of the system. “Why isn’t Johnny getting better grades,” waltzes in the irate parent whose disgust is an angry externalization of their own lack of ownership and involvement.

“Why doesn’t Johnny do more homework or have the motivation to succeed,” is the reply from the politically unfettered teacher.

Brains in Vats
That’s the other thing about over-outsourcing, and the outsourcing mentality in general. Even if the outsourcer does its job pretty well, you can always blame it for why your business is going bad, forgetting that the head is still connected and theoretically in control of the hands.

Check out this paragraph capsule about one man’s interpretation of the outsourcing fallacy in the IT space. It’s cool in the way it concludes that outsourcing, or “factoring,” is a 21st-century version of “brains in vats.” The author, who also wrote an 896-page book about next-generation interactive multimedia, says that “software is often so interwoven with business and other social processes that factoring is as likely to succeed as decoupling successfully the frontal cortex from the rest of the nervous system.”

In my opinion that’s what we do when we outsource blindly: we fail to connect the brain to the body, and the tentacles of our businesses are all crossed, and we don’t know where our children are, and we get mad when they get bad grades, and we can’t even see how we’re at fault because we’ve given the job to someone else for so long we wouldn’t know how to do it ourselves if we tried.

So if outsourcing ignorance isn’t bliss, maybe insourcing intelligence is.