The broken process dilemma

Fixing a broken process is often difficult, expensive and thankless. IT executives are divided on whether to outsource a broken process (e.g., payroll, help desk, accounting) or fix it in-house first. Some feel that outsourcers specialize in specific processes and therefore prefer to let the outsourcer fix what's broken. Others claim that after a broken process is outsourced, it often remains broken.

This view advocates fixing processes before outsourcing. There are good arguments on both sides.

Here's why you should let the outsourcer fix your process:

Expertise

Good outsourcers strive to make processes as efficient and effective as possible. They have state-of-the-art tools and metrics, as well as experienced staffers. They understand how to migrate customers' processes efficiently. One Fortune 500 company tried unsuccessfully to fix its payroll system for 10 years. When it finally outsourced, the new system was up and running in six months.

Impartiality

Your outsourcer functions as your business partner, but it's not part of your organizational hierarchy and is minimally affected by your corporate politics. This allows the outsourcer to make unbiased decisions regarding your processes. The outsourcer's staff is paid and promoted by its own management. And subpar performers can be removed easily.

Speed

In most cases, outsourcers can fix broken processes more quickly than you can. Contracts frequently offer outsourcers incentives for speed and effectiveness, and these bonuses are often collected. (Even if repairing the broken process is not specified in the contract, most outsourcers use their standardized procedures wherever possible to reduce their own costs and speed schedules.)

Political advantage

If you expect strong resistance to changing a corporate proc­ess, it may be expedient (and less painful) to let the outsourcer take the heat. This saves your political capital for future issues.

But there are reasons to fix your process before outsourcing:

Savings

Streamlined processes usually cost less to operate than broken ones, and whoever fixes the process reaps the savings. One Fortune 500 company outsourced its financial systems, which had been costing it US$10 million annually. The outsourcer streamlined the process and reduced costs to $4 million per year. Since the contract didn't require it to share any savings, the outsourcer pocketed the profits.

Contract terms

Broken processes need to be improved or redesigned. However, since the future process is rarely detailed in time for contract negotiations, it is difficult to specify contract terms covering the new process and appropriate metrics. This often leads to misunderstandings later.

Resource protection

Outsourcers serve many clients and have their own priorities. Understandably, larger accounts get more attention. Using your own staff to fix a process protects you from losing the resources your project requires to higher-priority client.

Internal corporate knowledge

You know your company better than any outsider. No matter how well intentioned an outsourcer is, it's often unfamiliar with your corporate culture and the day-to-day workings of your company. This knowledge -- or the lack of it -- significantly affects the design and adoption of new processes.

Companies sometimes feel forced to outsource broken processes because they lack staffers with process expertise. One effective alternative is to hire an outside firm (specializing in process redesign) to fix the process before it is given to your outsourcer. Such firms are not inexpensive, but their services represent a one-time cost. In return, your annual outsourcing costs will be reduced because of the lower cost basis of the streamlined process.

Depending on the situation, there are valid reasons for either approach to fixing broken processes. Don't be tied to one camp or the other, and be prepared to switch sides if circumstances warrant it.

Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.

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