Summation of Jeremy Barthelemy’s ‘The Seven Deadly Sins of Outsourcing’ Essay

Outsourcing is an essential strategy taken by various firms to reorganize their production by focusing on the main business operations. It is lauded for its ability to cut costs, and improve the performance of the organization.

However, in his article ‘the Seven Deadly Sins of Outsourcing’, Jeremy Barthelemy claims that the management fails during outsourcing undertakings as a result of seven sins.

Backed by survey data from companies across Europe and USA, Barthelemy claims that these companies outsource activities that ought not to be outsourced, choose wrong venders, come up with a poorly written contract, and overlook personal issues.

He further discovered that these companies lose control over the activities they have outsourced, fail to notice the veiled cost of outsourcing, and fail to plan for an exit tactic as discussed in this paper.

First Sin: Outsourcing Activities That Does Not Meet the Threshold

Barthelemy claims that organizations commit a grave mistake by outsourcing activities not supposed to be outsourced. Some firms outsource an area where its competitive advantage lies thereby ruining its competitive edge.

In this case, firms ought to consider resources and activities unique to its operations and focus on it and outsource other areas. Outsourcing a company’s core business activities makes a company hollow thereby losing its competitive advantage.

Second Sin: Selecting the Wrong Vendor

According to Barthelemy, most firms select a vendor based on the vendor’s ability to produce products and services at a low price. However, this is a wrong criterion because outsourcing is not for cost cutting alone. Both soft and hard qualifications should be considered when selecting a vendor.

Hard qualifications can be verified easily and they include a state of the art product or service and low cost. Many firms go for hard qualifications without knowing that these qualifications change, depending on the market conditions thereby affecting the outsourced activities negatively.

However, soft qualifications are not tangible yet they are the most crucial. They include the vendor’s ability to remain credible for a long time, cultural fit of the business among many.

Soft qualifications can be identified through the first impressions the vendor makes with the firms and also through studying the history of the internal and external environment of the vendor.

Third Sin: Writing a Poor Contract

Barthelemy claims that firms focus on vendor partnership and give the contract a little consideration. They develop trust-based relationships with vendors and run their operations on partnership management.

However, partnership management is dangerous as it does not give formal provisions for commitment of short term and long-term goals, and does not give an outsourcing firm the provision to set its expectations.

Barthelemy advises that a firm should spend quality time with vendor mulling over a contract negations. They should thereafter come up with a contract which is precise, inclusive, incentive based, flexible, and balanced.

Fourth Sin: Overlooking Personal Issues

Employees generally view outsourcing as an attempt to underestimate their input in the company. Failure to consider the personal issue can result in industrial action like strike or mass exodus during or even before the actual process of outsourcing.

Barthelemy (95) states that firms should consider two key personal issues during outsourcing to avoid an industrial action. First, employees vital to the company should be motivated and retained. Second, the vendor must provide a commitment to the workers within its premises, and those transferred to the vendor company.

Fifth Sin: Losing Control over the Outsourced Activity

Companies normally outsource their activities when there is a lapse in performance. However, lapse in performance is sometimes caused by poor management and thus when outsourced, such activities lack managerial expertise to draft strategies for its success.

This means the company should not outsource if the main reason is lack of management expertise. On the other hand, a firm should allow part of its management team to work with the vendor company for the success of the activity.

Sixth Sin: Overlooking Hidden Cost

Although the main purpose of outsourcing is for cost reduction, there are some costs overlooked by vendors. The first cost is called outsourcing or vendor search cost incurred by firms when looking for vendors.

Second is cost incurred when managing outsourced contracts. It involves the cost incurred by the firm during monitoring of the contract obligations.

Seventh Sin: Failing To Plan an Exit Strategy

Many firms fail to make a provision exiting a contract because they anticipate long-term relationships with vendors. However, they fail to see an outsourcing contract as a continuum. At one end is a business relationship where one or both parties have made investment relationship.

On the other hand, an outsourcing contract also can be seen as a market investment in which the client has the freedom of choosing or switching vendors at a minimum cost, depending on the prevailing conditions. This means there should always be an exit plan in the contract.

Conclusion

Based on the information in this article, it means important factors should be considered at all stages of outsourcing relationships. When making plans for outsourcing, a contract should be written professionally to provide a balance of power for both parties.

In addition, a core versus a noncore business approach should be considered before selecting the right vendor. At the beginning of the relationships, various issues, such as hidden costs, personal issues, and management issues should be considered carefully.

Lastly, a firm should ensure a reversibility clause is included in its deal. The issues handled by the author are essential, and involves the internal as well as external environment of the company.

Works Cited

Barthelemy, Jerome. “The seven deadly sins of outsourcing.” Academy of Management Executive 17.2 (2003): 87-97. Print.