Outsourcing: The Welch Way or the Drucker Way?
No one is credited more than Jack Welch for popularizing outsourcing and offshoring (yes, it is not just offshoring and India). Remember his original formula – 70:70:70? That is 70% of all GE processes could be outsourced; 70% of all that could be outsourced could be offshored; and 70% of all that could be offshored could be offshored to India. The first 70% actually stood — or rather stands — for outsourcing. Like Moore’s law in semiconductor, Welch’s formula, by and large, is still valid as an execution planning formula for large diversified corporations. As a philosophy, well, not so sure.
As a strategy, Jack Welch’s rules of business — that held sway over corporate America for close to two decades — are increasingly being questioned. Why, Fortune did a cover story on it recently, calling it The New Rules. Fortune summed Welch’s influence nicely.
…Virtually everything Welch said became gospel – often to the extreme. When Welch embraced Six Sigma, the program began to proliferate all over corporate America. He talked about being the leanest and meanest and lowest-cost, and corporate America got out its ax. Welch advocated ranking your players and weeding out your weakest, and HR departments turned Darwinian.
Welch’s rules have been broken not just by the newcomers (I did not say it, but if you hear Google, it is fine with me too) but as Fortune says, also by the born-again mavericks like Steve Jobs. I am not getting into discussing the “new rules” as listed by the magazine, but you can identify with many of them quite closely.Come to our own debate. If the rules of business laid down by Welch are so twentieth-century, can his outsourcing rules be valid for the new era?
Take, for example, the management philosophy of focusing on “being the leanest and meanest and lowest-cost” which is increasingly being questioned because it is too much focused on managing cost for the sake of impressive stock performance in the short run.
Much of today’s rules of outsourcing have been crafted to serve this objective of making a company leanest and meanest. And it is not just the low-cost vendor selection that I am referring to. In fact, much of today’s completely metrics-driven outsourcing agreements are a result of that. So, if you are consistently dissatisfied about your outsourcing initiative, don’t blame your service provider or his technology. When you are trying to create tomorrow’s structure with yesterday’s engineering know-how, you are bound to remain dissatisfied.
But despair not. Outsourcing’s rules (set out by Welch) may have run out of their time. Outsourcing as a philosophy is still valid. Probably more than ever.
Just as Fortune lists the thousand-year old rule of business — customer is the king — as one of its “new” rules, I would like to point to the reasoning for outsourcing given by the greatest management philosopher ever, Peter Drucker.
Now, thank God, we’ve discovered outsourcing, but I would also say we don’t yet really know how to do outsourcing well.Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management.
When you outsource to a total-quality-control specialist, he is busy 48 weeks a year working for you and a number of other clients on something he sees as challenging. Whereas a total-quality-control person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects. That’s why when you outsource you may actually increase costs, but you also get better effectiveness.
That is Peter Drucker, explaining outsourcing — you outsource to “greatly improve the quality of the people who still work for you”Also mark his words — through outsourcing, you get “better effectiveness”. How many of those who have outsourced today can say with a straight face they have got “better effectiveness”? The best of them would probably claim “better efficiency”.
Outsourcing for efficiency — that is the Welch-way – still holds good for certain tasks, but probably not as an organizational strategy anymore. An organization — business or any other — ultimately has to be effective in what it is trying to achieve. Efficiency, at best, is a good tool to be used when needed, on the way.
So, are you doing outsourcing the Drucker Way yet?
Effeciency and effectiveness are not alternatives
I agree that at the end of the day, you should be effective. But efficiency is still very important. I don’t think it is an either-or.
Outsourcing is more alive than ever
the 70-70-70 has evolved to new and more aggresive ways to be efficient and also get specialized…emrging countries, it is your time to shine in a truly global economy
Time is money
Another age old business rule that Peter Drucker knows all too well. Druckers’ philosophy on outsourcing lead the way and Welchs’ brought it to India. Today’s challenges require that we continue to analyze our core competencies and outsource the rest.
Outsourcing: The Welch Way or the Drucker Way?
Being 10 years with BPO’s in India, Everyone has beneifted both in effficiency and effectiveness, this article doesnt make sense at all.
Mike’s Wrong, Almost
Outsourcing/Offshoring is not OVER.
And more industry verticals joining the “O” community – look at the BoozAllenHamilton study on Enginering Outsourcing. And India is expected to grab $40 billion opportunity from offshoring of engineering services!
And look @ Everest Research Institute’s study on Outsourcing renewals – Outsourcing Contracts worth $118Bn to be Renewed in 2006-2008. Its $118 BILLION !!!!
Wrong!!!!
Outsourcing is dying and backsourcing is growing.
Greater efficiency? What a laugh! Just asked anyone who has managed the offshore projects.