Hidden Costs of Outsourcing

A friend sent me this article from CNN Money. It’s not often that you see a mainstream article that provides data to refute the idea that outsourcing is THE way to reduce costs.

The article mostly deals with outsourcing customer service functions such as call centers and IT support. It suggests that outside contractors costs are lower not because they are necessarily more efficient, but because they pay people less, spend less on training or both. It also discussed the disconnection workers have with the company they are servicing.

Where I think the article gets even closer to the truth is in challenging thinking that outsourcing can create competitive advantage. Competitors can always hire the same contractors to do the same thing. Outsourcing is not a strategy that will bring competitive advantage, or a strategy that is likely to increase perceived value for consumers.

There was no reference to lean consumption, but Womack & Jones suggest turning customer service into a competitive advantage in their book Lean Solutions. Not only can superior service keep customers happy, but it can be used as input to continuously improve the products being serviced.

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Luke Van Dongen

Luke, an auto industry engineering veteran, blogged here from 2005 to 2006.

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1 Comment on "Hidden Costs of Outsourcing"

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  1. Mark Graban says:

    Instead of outsourcing to cut costs (which also often destroys value), companies should definitely use lean thinking to cut costs and improve customer value.

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