Mismanaging IP Outsourcing (no in 27 in our list of IP mistakes)

IP outsourcing is becoming the norm and not the exception, especially for large multi-national companies.  The three benefits of IP outsourcing sought are:

  1. Lower operational costs (lower salaries overseas)
  2. Greater proficiency in the work done (specialists)
  3. Faster workflow (added support when needed)


Mismanaging outsourcing, however, can negate any or all of these benefits or create new problems altogether.  What can happen?  Here are some examples – by no means comprehensive. 

  1. Air Bubble Effect – Ever try to squeeze an air bubble out of a sticker on a window?  Press down in one place and the air bubble moves to another.  This can happen with outsourcing.  For example, while you may save salary costs by outsourcing, your costs of communications, quality control, management travel, additional facilities, and more could rise to take its place.  Specialists may have less knowledge than people living with the company’s challenges and opportunities day-to-day.  More support to handle workflow influxes may come attended with new bottlenecks putting that support into motion and bringing people up to speed.  End result, you just moved the bubble to no net benefit. 
  2. Visual “Cuelessness” – Communications from a distance leaves out an important medium of communication called body language.  Teams that work together physically learn how to read each other, often with no words spoken.  They can see on your face that a matter is more important than usual, or that you aren’t satisfied with a result even if your words say that you are.  This particularly becomes evident for outsourcing where cost reduction is a goal because the technical solutions to make distant team members close, like videoconferencing and occasional face-to-face meetings, can prove expensive in money and time…and the people skilled at the art of distance work will often command higher salaries because they can be so valuable.  End result expensive miscommunication.
  3. Uncle Jake Effect – HR impacts on outsourcing can be a problem with moral and employee loyalty for those teams and locations losing local headcount to outsourcing.  When I worked for an outsource provider, more than once I had colleagues who were friends pull me aside and ask me not to push an outsource solution too hard because they were afraid for their jobs.  It is hard for people to work and maintain loyalty when they feel their jobs could go overseas at any time, and when “Uncle Jake” who has been unemployed for a year would be happy to do a job already sent abroad.  Outsourcing is a competitive reality – and failure to manage it well is a mistake that can have long-term impacts on productivity and know-how.  The idea to repurpose people for new positions needs to be real, not lip service, or alternatively the ideas of Machiavelli need to be heeded to not let the pain and uncertainty to affected individuals linger inside a company too long.
  4. Fiduciary Unbalance – When I visited India for the first time, I was impressed by just how hard people seemed to be working.  This was a hypercompetitive environment with a lot of skilled folks willing to do work for lower salaries than counterparts in Europe and the USA.  Just as unbalanced compensation can cause rifts and jealousies within an office in one location, rifts can develop at a company with significant salary differences accorded to where companies locate offices in the world…especially if by all other measures outsourced positions are equal.  While people know that cost of living difference between say San Francisco, Kansas City, and Bangalore may make equivalent compensation illogical, the differences need to make sense and come attended with regional benefits that keep people satisfied with their opportunity.         
  5. Mercenary Loyalty – Military leaders of old understood never to depend upon mercenary troops when an hour of darkness arrived.  Nothing has changed on this matter regarding outsourcing.  Outsourcing is a business, and if, in your hour of business darkness, you need sacrifice to carry you through, you may not get that from your outsource provider.  People will be assigned to other customers ready to pay right when you needed them most.
  6. IP Loss – IP loss is a problem any time an employee leaves to move to another company.  It can be an even larger problem if an outsource provider with high turnover has access to sensitive IP information because there will be little if any moral loyalty to keep sensitive information secret because it is the “right thing to do.”


All of these problems can be dealt with by managing outsourcing properly.  Here are some ideas, again by no means comprehensive:

  1. Air Bubble Effect: Be very thorough in your analysis of an outsource solution so that your solution to a problem via outsourcing does not create other negating problems.
  2. Visual “Cuelessness”: Do not skimp on communications and consider instead using state-of-the-art video conferencing systems that make it seem like you are in the room with other people.  Skype video is free for individuals, and there are a number of ways to build virtual water coolers that allow people to do virtually what they would do in an office to keep in touch.
  3. Uncle Jake: This is a significant HR challenge where the proverbial “do unto others as you would have them do unto you” does not work.  Jobs are affected, and you generally don’t want to lay off yourself.  Handle outsourcing professionally and with professionals who managed an outsourcing transition well before.
  4. Unbalance: Be sure there are clear reasons behind differences in compensation, ideally that go beyond just region.  Some large companies have moved the preponderance of entire job classes to different regions of the world so that the salary structures of those job classes become uniform.  Where the job titles are nominally the same in different regions, the job requirements are often different to help justify differences in compensation.
  5. Mercenary Loyalty: Many organizations, such as GE and Ford, have moved jobs overseas without necessarily outsourcing them – or at least not all of the positions.  The people doing outsourced work are actual employees.  Other organizations have become very selective of their outsource providers, examining security policies, turnover rates, and whether the outsource provider has a career track that at least fosters loyalty within the outsource provider.  It is possible to work with outsource providers to form dedicated teams working within facilities emblazoned with the company logo in order to emulate full employee membership.
  6. IP Loss: Remember that outsource providers are not your employees unless you have truly hired your own teams.  Look for highly reputable providers and enforce your agreements with them.  Carefully manage what people know and need to know to do their work.  And above all, get to know your outsource providers as people and colleagues so that you inherently know who you can trust.  

(This is number 27 in our list of IP mistakes and how to fix them.)

Image credit: Hemera

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