City & Business: Outsourcing: where will it all end?

Perhaps heeding a modern business adage like "a little outsourcing is a dangerous thing", companies have been contracting out every peripheral activity they can. Back office functions, facilities management, distribution, IT and personnel have gone the outsourcing way, largely because the senior management need to delegate to someone, and the middle managers who used to do the job are now proud owners of redundancy cheques. Now those same companies are looking at areas still under house control: production, design, customer service and, dare one contemplate it, marketing and brand management.

Where does one draw the line? The answer so far seems to be: nowhere. Proponents argue that outsourcing functions closer to the core of a business, like manufacturing or (if a predominantly service business) customer service, should be viewed with the same logic applied to all outsourcing decisions. Why make your remaining managers scramble to keep up with some of the costliest and fastest-changing aspects of your business when outside professionals, directly accountable for their performance to the executive suite, can do it better and save money at the same time?

There is a deep flaw in this argument, of course. Most chief executives have found that outsourcing can be fun for a while - particularly when they can quickly announce reduced staff costs and immediate productivity savings to investors. But further down the road they often find that making radical strategic decisions to change the shape of a company can be hard. Instead of just altering the management chart, buying this business and selling that one, they now have to negotiate the minefield of numerous contracts with outside companies. Suddenly change becomes a little bit harder to accomplish.

Then there is the prospect of outsourcing brand management and marketing. If anything is a potential recipe for disaster it is the idea that handing over your core competence to another organisation can be good for shareholders. If current management cannot, to take a hypothetical example, brand and market baked beans, why are they there? And should investors not up sticks and move their money elsewhere?

Clearly, the truth lies between the two poles. Bringing in a marketing consultancy for a specific project should be applauded if it brings specific skills to the party. Ditto the company that answers your telephone calls for you, if it is given a good script to follow and can be held completely accountable, just as the firm that provides meals in the cafeteria should be subject to quality control - ie whether the workforce think its meals are edible.

If anything, outsourcing should mean more, rather than less, management attention. Those hoping to outsource a function to save management time may be disappointed as a result.

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