Outsourcing is redefining the modem business organization in ways few had envisioned even a decade ago. Consider the following:
• 50% to 70% of the average cost of a product sold in the U.S. comes from outside suppliers.
• Worldwide, outsourcing for everything from basic custodial work through the most sophisticated integrated parts of a company's operations is exploding by 25% to 30% per year.

For the individual manager, there may be a rush to outsource just because it's what everyone else is doing. Managers should not outsource just to follow the trend; they should outsource to accomplish something in their operations – improve performance, reduce costs, accelerate growth. To do this, every manager needs to know the answers to the following five questions.

Question #1: What is outsourcing?
Outsourcing represents a long-term, results-oriented relationship with a specialized outside organization for whole functions that traditionally were done inside. When you outsource you have actually made a conscious, strategic decision that a set of activities or a function is not something you intend to develop and maintain as an internal competency. You look, instead, to leverage the unique, specialized ability of another organization and intend to do so for the foreseeable future.

When you outsource, you shift your attention from 'how' issues to 'what' issues. You begin focusing more closely on the needs of your business and less on its internal operational constraints. Instead of limiting the solutions you offer because of limitations in the resources at your disposal, you begin to see yourself as an integrator of a virtually unlimited resource and skill pool. At the same time, your suppliers become your partners. You begin to look to them for creative ideas, new ways of doing things, new technologies and approaches. Their experience, after all, comes not from doing the work for one company--yours--but from serving hundreds, if not thousands of customers.

Question #2: Why are you outsourcing?
You have to ask where your organization gains its unique competitive advantage. If you choose to do something yourself, you should be better at it than the best company your competitor could hire to do it for them. If not, then you are sacrificing a competitive edge, which few can afford to do for long.

What are some of the business problems you might use outsourcing to solve?
• Inability to attract and retain needed talent.
• Competitive disadvantages resulting from internal operations that are not at best-in-world standards of performance.
• The need to speed entry into new markets.
• Rapid obsolescence of technologies making internal investments risky and hard to justify.
• Inefficiencies caused by cyclical demands and fluctuating volumes.
• Inability to offer career advancement to current employees because of limited opportunities.

Question #3: Is this a good outsourcing provider?
Finding the right partner and then managing the relationship is vital. Experience shows there are five key characteristics to be addressed:
1) Does the company have a demonstrated competency and a proven track record of solving similar problems for organizations similar to yours?
2) Are the services to be provided truly the core competency of that organization?
3) Are they best-in-world at what they do with a proven track record of advancement in their field?
4) What are the total capabilities and overall strengths of the organization? If this is going to be a long-term partner, they need financial, organizational, and management strength and depth. Also consider the full complement of capabilities you may need in the future.
5) Is the organization making and sustaining the kinds of investments needed to be a long-term strategic partner?

You need a competitive solution. Obviously, the specific solution proposed must fit your needs and it must work. But there are other factors as well. How will you treat affected personnel? How are the risks allocated and shared? Is there enough flexibility to handle the natural changes over time?

Question #4: How do I manage the relationship?
The relationship dynamics between the companies are critical for success. Will your organization's values and operating idiosyncrasies complement or aggravate each other? How important will you be as a customer? If too important, you may end-up with a subcontractor simply doing your bidding. If not important enough, you may end up with a rigid response to your ever-changing needs.

Most successful managers compare managing outsourcing relationships to the type of relationship they have with key employees. A shared commitment to achieving results and staying ahead of change is what makes outsourcing work.

Equally important, the pricing and contract terms need to be designed so that both parties have a long-term alignment of interests. Develop a mutually agreed scorecard in advance that clearly and simply defines the desired results. Then, surround the relationship with a cohesive management system. This system should create organizational links between the companies at the operational, tactical, and strategic levels. Expect change and make sure everyone involved understands the process for dealing with change. Expect problems and make sure everyone involved understands the process for dealing with them as well.

Question #5: How does outsourcing change my job?
As outsourcing continues to redefine organizations it also redefines the role of the manager. A manager entrusted with an outsourcing relationship needs a desire to manage, not to do. You need to be a champion of change with the ability to instill trust. You need solid communications, negotiation, strategic planning, project management, team leadership, and even marketing skills.

The organization of the future needs two skill sets. The first is its core competencies--those skills and knowledge sets that truly differentiate the company within its marketplace and provide its unique competitive advantage. The organization will make significant ongoing investments to enhance and refine these competencies. As a result, the managers in these areas of the business will see increasing opportunities and upward mobility in their careers.

The second skill set is integration. The organization needs strong general managers who understand the business and how to integrate the capabilities of outside specialists into its overall operations. For the individual manager the question becomes: Is the area in which I specialize a core competency of my company?

If it is, fine. If it isn't, you're faced with a choice. You should either move your skills toward those of a general manager focusing on the business and the integration of outsiders or, if you prefer to stay specialized, look for the opportunity to join an outsourcing service provider where your expertise matches their core competency. This is the most important career question faced by most managers today.

A final thought...
Outsourcing gets a bad reputation when it's used to get something done more cheaply by hiring a low-cost supplier. Too often the organization ends up trading-off cost for quality, expediency for loyalty, long-term success for short-term returns. Done right, outsourcing creates enormous business value – both for your organization and for your career.

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