Why Outsourcing, M&A, and Shared Services Fail

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This is the 42nd episode of the Effective Executive podcast. In this episode, Tripp Babbitt looks at why outsourcing, M&A, and Shared Services fail. Download our Effective Executive Starter Kit.

Show Notes
[00:00:01]
The Effective Executive – Episode 42

[00:00:56]
Outsourcing, M&A, and Shared Services

[00:04:00]
Examples

[00:04:17]
Outsourcing for Expertise -CMMI

Transcript
[00:00:01] Hi, I’m Tripp Babbitt, this is the 42nd episode of the effective executive podcast and YouTube video. And this week I want to cover why outsourcing, mergers and acquisitions and shared services fail. And I have worked with a lot of organizations that have done any combination of those things, and they fail at a very high rate. I thought about maybe doing a video may still yet do a video on each one of these things because they could be their own area to cover. But what’s start, at least by covering each one of these? Because they have a lot of things in common that lead them to failure.

[00:00:56] So, again, outsourcing mergers and acquisitions and shared services and what typically organizations are looking for in these things are either cheaper labor economies of scale is a predominant thinking, lack of expertize or or invariably some type of control over what they’re doing. And and different industries have different things. For instance, in manufacturing, I found that they say, well, I don’t have any expertize in running a contact center, so I’m going to outsource my, you know, contact center for customers, which I believe is a bad idea to do something. You have to have some knowledge of what your customers are saying and totally outsourcing it to someone who has no knowledge of your manufacturing processes is a bad idea.

[00:02:02] Now, the things that are most commonly I find combined, you know, as far as well, whether it’s outsourcing, mergers, acquisition or sharing services, are contact centers probably the top of the list. But I.T., things like the Help Desk, the data centers, the project management office, information security, you know, all that I.T. stuff that organizations should have a better understanding of, but typically don’t. I think that’s starting to go away. As I see, you know, people there are more I.T. savvy than in previous generations, but it’s still one of the. What I would call, I guess, failure points for combining services, but again, contact centers and it maybe that’s because I’ve worked with a lot of different kind of tech centers around the world. But the operational assumption that people have or the assumption or what I referenced is the theory at work and why we’ve designed it this way is all around that each part, each divisional part does the same thing. So if you looked across a division, you might find that one division has a contact center, another one has a contact center, and you say, hey, boy, you’ve got a contact center. We’ve got a context that we’re just combining them and we’ll get economies of scale and save money and have greater control over those particular pieces. And so, you know, yes, I’m going to be judgmental on this, but at the same time. You know, you are where you are, and so your assumptions are the ones that need to be a need to be challenged and see if there’s a better way of going about it.

[00:04:00] So what are some examples of this? Well, for years, I kind of had people that I worked with that they thought that CMM at the time capability maturity model was the best thing for development.

[00:04:17] Later, it became called the CMMI, which is capability, maturity model integration, and was mostly around software development. Now they’ve expanded that into services and other things in the use of this model, but primarily software developments where I saw it and we all praised the CMM Level five organization until I started working with a large insurance company in Europe. And what I discovered was after going to see their processes and understand them, understand what the customers were wanting out of the system, the people that actually do the work, what they were doing, and then they outsource their software development to India and Pune and Bangalore and other places around India. And so I went to visit them. And the first thing I discovered was, as I was told by the CMM, eye level five people as well, we can’t be very effective unless we are actually involved with the people who do the work and understand what’s happening with the customers. So it never makes much sense to me why people would go through an outsourced something that is as important as development to save money or to gain some type of control or get some type of economies of scale or some fictitious lack of expertize that they may have. There are things that you have to have within your organization, and this comes through knowledge of the system in which you’re working on. And and so you need to and I and I understand I seen, especially in Europe, huge bureaucracies around I.T.You know, I’ve seen where the internal IT departments charge millions of dollars, you know, in order to get a particular project done. And then, of course, someone from another country, primarily India, has been my experience. They can do it better. They have a CMM Level five. And so they wind up outsourcing it. And without knowledge, they get crap, too. You know, it’s just kind of crap in crap out.

[00:06:43] And then contact centers, you know, they are things where people make the operational assumption that all all each contact center and this division has one. This division has one in this which is combine them all and we have greater control and economies of scale and all the things that I talked about before. And they see it as low hanging fruit. When I say they it’s executives. I mean, they’re the ones pulling the strings on these things because all of this knowledge that people get is handed down from one executive to the next. And it seems to make sense, you know. Oh, well, we got three different concept. If we just move them into one, we have these shared services. And and, you know, we’ll get the economies of scale and things will be great. And I’ve never found that to be true. Working with many large organizations either on mergers, acquisitions, the sharing of services is because each of these contact centers have different types of interactions from customers or internal customers or whatever it is.

[00:07:54] And because they’re so different, the the assumption that they’re all the same is where this thing fails. And so these different customers and these different interactions that you have and even with regards to the employees of each of these divisions, have intimate knowledge of what’s going on and how to handle people within their system. So just combining them together and saying, boy, see how great that is and how much more control we’re going to have and how we won’t have to have instead of 300 people, maybe we’ll have 200 people because we’ve combined all of these contact centers, never pans out. A matter of fact, it always seems to make it worse because then we’re treating you know, someone always has the upper hand. There will be one contact center because maybe it was the largest or has the most favorable power play from a executive standpoint. And so they go, oh, they’re the good. And so we’ll just copy what they’re doing and combine everything and we’ll close this other contact centers down. Well, the first thing you’ve got to do, as I’ve mentioned, is instead of outsourcing and combining your waste, in many cases, you have to understand what’s coming in. And so, you know, part of the system that I take people through, obviously, is to study the customer interactions through the customer lens so they can get a sense of what it is that each of these contact centers, which just take the three fictitious contact centers that I have mentioned, is that they have through the customer lens, they’re most likely going to have different customers.

[00:09:50] And therefore, what are they asking for? What are the types of interactions that they’re bringing to the table and are they all the same? And that’s a place to start. Now you can stuff them in together and make the assumption that they are all the same, but often. 90 plus percent of the time they’re not. And that’s why you have to go through some due diligence in order to determine what’s going on in these contact centers, because they’ll have different types of interactions and customers and people and processes and everything within the system. So this is kind of into the analytical thinking where we’re breaking the parts down and trying to optimize each part, as opposed to looking at the system and understanding it through the customer lens. And then what the operational what the assumptions are, what I call theories that work. Looking through the thinking lens of your organization, why do we why do we do this or why do we think this is the right thing to do and it’s never the right thing to do without first getting gaining some degree of understanding of of what’s going on in each of these different pieces, in this case, a contact center. And if they are the same, then maybe it does make some sense, but I would still do it on a small scale. First to see how it how it works out, what is you’re going to run into some issues, some things you didn’t anticipate, maybe some things you didn’t see when you were looking through the customer lens, and then you make your way into making a system that is better.

[00:11:30] And that’s what really you’re after, because there is no economies of scale when people are having to call back because you know, your customers, you’re upsetting them because, you know, you went through and you can’t answer questions used to be able to answer because the people that are now answering the phone and one region or one location can no longer answer the questions that used to be able to get answered or understand the process of what a customer is going through. So, again, I could spend a lot of time on outsourcing M&A mergers and acquisitions and shared services alone. I may yet in the future. But I just want to kind of give you an overview of what analytical thinking does. It makes a lot of assumptions about what what can happen. Oh, it’s called a contact center. Let’s combine them. Oh, it’s called a bunch of different project manager. Let’s combine them. It’s a help desk. Combine them data centers, let’s combine them. And all these things need study and understanding and what the impact will be on the customer before you do any of them. And if you do decide to make a change that you do on a small scale first and most organizations, you’re offered an opportunity to do it on a small scale. So that’s what I wanted to cover this week. And the effective executive.

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