12 Trends Shaping the Outsourcing Market
Rather than just seeking the lowest prices, buyers are relying on more sophisticated techniques.
Back in 2007 I wrote about the growth in federal outsourcing contracts during President George W. Bush's two terms. According to a New York Times report, such contracts jumped from $207 billion in 2000 to some $400 billion in 2006. A number of concerns were raised in the report, including a shortfall of government staffers overseeing the contracts, a steep reduction in competitive bidding and the growth of "quasi agencies" like Lockheed Martin, which laid out $59 million in lobbying and political donations during the time frame and received more money from the feds than the Justice or Energy departments in 2006.
In late 2008 President Obama pledged to examine work outsourced by federal agencies to "ensure that it is fiscally responsible and effective." In a letter to Department of Housing and Urban Development employees, Obama wrote:
... It is dishonest to claim real savings by reducing the number of HUD employees overseeing a program but increase the real cost of the program by transferring oversight to contracts. I pledge to reverse this poor management practice.
Since then, many agencies have pledged to reduce the amount of outsourced work. Yet in many cases they apparently haven't achieved the savings they anticipated.
According to the Washington Post, Defense Secretary Robert Gates in August told reporters the Pentagon was not "seeing the savings we had hoped" from bringing work in-house. Now Army Secretary John McHugh has acted to slow insourcing, suspending already authorized proposals and saying he will personally oversee all new ones. In a memo, McHugh said all proposals to insource work must include "a manpower requirements determination, an analysis of all potential alternatives to the establishment of permanent civilian authorizations to perform the contracted work, certification of fund availability and a comprehensive legal review."
Huh. So proposals were being approved without those things?
I think I see the problem: Some organizations see outsourcing as a panacea. Guess what? It isn't. Neither is insourcing, if it's not approached strategically. I think too often organizations respond to perceived shortcomings in efficiency by adopting outsourcing (or insourcing), with little real analysis of how such a sweeping organizational change will affect their business.
Interestingly, both outsourcing and insourcing initiatives can benefit from the same bit of good advice: Break big projects up into more manageable chunks. In my post from last March, Danny Jones, a partner at sourcing advisory TPI, explained that breaking down transformation projects into stages that can be contracted for as the project progresses "enables estimates to be more accurate and solutions more flexible, allowing for unanticipated changes or complications." (Let's face it, the nature of these kinds of projects almost guarantees there will be unanticipated changes.)
Similarly, when I interviewed Bob Mathers, a principal consultant for Compass Management Consulting, he told me insourcing should start with the basics:
You have to take what seems like a monumental task and break it down into manageable pieces and then say, "OK, what skills do we have and what expertise do we need and do we have the appetite for bringing services back in-house?"