Opinion: Outsourcing: What You Don't Know Can Hurt You

FROM COMPUTERWORLD

Michael H. Zack

November 28, 2007 (Computerworld)

Outsourcing — contracting with outside parties to supply and manage services that companies and organizations have typically provided for themselves — is becoming a universally accepted way of doing business. But in deciding to outsource, are companies asking themselves the most relevant questions?

In most cases, the key concerns driving the decision to outsource are cost and capacity. What's been neglected in weighing the benefits and risks of outsourcing are the issues of knowledge transfer and organizational learning. Companies can increase the advantage and reduce the downside of outsourcing when they evaluate it from a knowledge-based view.

Organizations learn mostly as a by-product of performing activities — so-called learning-by-doing. Outsource an activity and you outsource the learning that comes with it. Therefore, if you outsource activities that provide an opportunity for strategically important learning, you may be creating a significant competitive threat to the company.

When a company outsources, it essentially is transferring the opportunity to learn about an activity to an outside provider. The provider gains knowledge about the activity being farmed out, often making improvements or even radically restructuring the way the activity is done. The client company relies on the provider for the outcome of that activity, but there's a risk that through outsourcing a company's understanding of these key activities may erode. And transferring the knowledge and learning back to a client company that no longer understands the old activity let alone the new and improved version, can be difficult at best, and in many cases impossible.

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