Is Outsourcing
 a Silver Bullet?

WE’VE ALL heard about silver bullets. In folklore, silver bullets were used to deal with exceptional problems, like monsters. The Lone Ranger used silver bullets to dispatch the bad guys. They were symbols of law and order—of justice. Over time, the term has morphed into a metaphor often used to describe effective solutions to difficult problems.
Organizations are dealing with some pretty exceptional problems, too, and “outsourcing” has been touted as management’s silver bullet to deal with them.

Public organizations coping with funding reductions and declining revenues—and private organizations looking for new sources of income—have been encouraged to think about outsourcing “non-core” services as a solution to their economic problems. Management gurus have been telling us for years that outsourcing is a silver bullet that will solve those problems, and now is the time to do it.

If it were only that simple.

The management gurus have painted a rosy picture of how outsourcing can lead to economic nirvana. Companies that outsource non-core services are supposedly more flexible, can respond more quickly to changes in the environment or technology, can devote more of their capital resources to strategic concerns, and generally become more efficient.

Or so we are told.

Why do organizations outsource services? The stated reasons—the ones frequently used to justify an outsourcing initiative—include: reducing costs, improving quality, focusing on core competencies, making better use of administrative time, making better use of resources, and acquiring new technologies. These are the textbook reasons and have become talking points for outsource proponents. But they are hollow and cloud the real issues.

Beware the Darker Motives

We contend that other, more insidious motives are often at play. Outsourcing is frequently used to address problems that management lacks the skill to address head on. For example, if the in-plant has a history of poor performance or high costs, management may opt to contract for the service in hopes that outsourcing will make the problem go away.

Outsourcing is trendy. It’s a management fad, much like Total Quality Management (TQM), Business Process Reengineering (BPR), Zero Based Budgeting (ZBB) and Management By Objective (MBO). Other managers are doing it, so it must be the right thing. Thankfully, most of these management fads have faded away.

Let’s not generalize and condemn all forms of outsourcing. To do so would be as disingenuous as those claiming that outsourcing is management’s silver bullet. There are examples of successful outsourcing of non-core services, but printing does not happen to be on the list.

Outsourcing works best when the output can be clearly measured and monitored, but what does success for an outsourced print shop look like? Reducing costs was one of the frequently cited reasons to outsource, but the easiest way for a vendor to reduce costs is to cut back on labor, and that has a negative impact on service levels. Most of us have struggled with finding ways to describe what we do in terms that are important and relevant to our bosses. Will the outsource vendor be any different?

Outsourcing works best when expectations can be clearly identified—another battle many in-plant managers have been facing for years. The old three-legged stool analogy (service, quality or price: pick any two) applies to outsourcing vendors as well. Maintaining service and quality levels requires resources that the vendor may not want to commit.

Equipment Isn’t the Answer

Equipment vendors and self-styled “experts”—consultants and special interest groups—are constantly telling management that the in-plant must keep up with the latest-greatest technology to be competitive. But it’s not all about the equipment or technology. Up-to-date equipment is important, but other things contribute to a healthy printing facility. Profitable printing companies are not necessarily the ones with large, multi-color presses and sophisticated electronic prepress equipment. Judging from the number of advertisements I get offering to sell five- and six-color presses in great condition for bargain rates, a lot of commercial shops with big presses have closed. This tells me that equipment isn’t the only answer.

Profitable printing companies are those that manage their costs, keep quality and productivity high and provide knock-your-socks-off customer service. The same formula applies to in-plant printing units. The in-plant that takes care of its customers and helps them be successful is an asset to the organization and should be recognized as such.

When managers make the strategic decision to shut down an in-plant facility and outsource, what are the chances that print costs will go down? Is outsourcing the panacea that its proponents claim?

No Supporting Research

Unfortunately, most of the academic research does not support the effectiveness of outsourcing as a management cure all. The “studies” that point to significant savings from outsourcing print are done by print vendors or by trade associations with an agenda. What’s the real story?

The real story is that most outsourcing research is focused on: What (identifying products and services that organizations chose to buy) and Why (anecdotal representation of stated reasons for outsourcing services). When surveyed, organizations often select cost reduction as a reason for deciding to outsource something. Cost reduction becomes synonymous with outsourcing and the myth is born. Vendor claims to be able to reduce printing expense by closing the in-plant and buying all printing are questionable at best, but no one checks them. In short, outsourcing research fails to ask the right questions.

Why don’t organizations measure the effectiveness of outsourcing initiatives? One reason is: They can’t. First, evaluation requires the identification of a desired outcome, but many outsourcing initiatives lack clearly defined goals, and in the absence of clear and specific goals, measuring progress toward meeting those goals is problematic.

Second, measuring cost reductions is especially difficult, because organizations often have no idea what they pay for the service now. This can be particularly true with printing where desktop printers, office copiers and multi-function devices (MFDs) compete with centralized production.

Outsourcing is promoted as a way for organizations to minimize costs and focus on core business competencies, but a growing body of research suggests that many of the advantages hyped by outsourcing proponents simply are not there.

Problems with Outsourcing

The academic research points to several potential problems with outsourcing non-core services:

Don’t outsource a management problem. While organizations may outsource a function or business process because they lack the competencies to manage the service internally, the same skills are required to successfully outsource the service. In addition, skills in contract preparation and performance monitoring to maintain a successful outsourcing agreement will also be required. Simply put, organizations that lack the resources to manage a service internally are not likely to have the skills to manage a contract to acquire those same services.

Don’t overlook transaction costs. As the cost of negotiating a contract and monitoring the performance of a contractor increases, the added value of outsourcing has to be discounted. High transaction costs tend to exist when the service is complex or poorly understood, when the assets used to deliver the service are nonstandard and cannot be used for other purposes, or in any instance when there is a mismatch between the vendor’s and the purchaser’s knowledge. Like printing.

Set clear expectations. Many outsourcing agreements fail because the buyer was unable to clearly articulate performance expectations. Vague, weak and poorly designed performance standards contribute to failed outsourcing agreements. Outsourced printing performance standards should include all of the same criteria we use to rate performance internally, including print quality, registration, using the correct stock, coverage, waste and spoilage, and especially on-time delivery.

There may be good reasons to outsource some services, but cost savings, at least for printing, isn’t one of them.