Why Outsourcing Fails 1. - Span of Control

Overcoming objections is all in a day's work for someone working for organisational change; it is as essential a skill for a good manager as for a good salesperson. Meeting objections head-on can be counter-productive and it is usually more effective to persuade than to confront.

In order to do that we need to accept and measure the valid objections then move on to form a complete picture of the true costs of our project.

A decision to outsource should not be the outcome of a sales process but a managed business decision. Lack of expertise and experience around outsourcing management is as common as the ubiquitous objections such as "communication will be a problem".

I have decided to produce a list of the common issues encountered in an outsourced project as a way of providing guidance towards implementing successful outsourcing projects. At the end of the day, there is no substitute for sound judgement.

Like any established business process, outsourcing runs a risk of failure from inadequate planning. It is not a panacea or a silver-bullet and it is not possible to just leave everything to the suppliers. You wouldn't do that with any other process. Cost savings are possible but so is project failure.

So here is the first article; "Span of Control".

Communicating with an offshore operation is simply more intricate, time-consuming and complex than doing the same in-house. To the change resistor, "communication problems", is the usual starting point for why an outsourcing project will "just not work at our organization".

Anything manageable can be measured and the measure here is simple and obvious once you look for it.

Span of Control is the expression used to refer to the ratio of managers to employees. Organizationally, across the whole of business in the United States this is a ratio of 1:10. Obviously the more complex the process the lower the ratio needs to be. I have seen ratios of 1:15 in software teams but these flat organizational structures never last as it eventually becomes obvious to all that the burden of communication and control has overwhelmed the unfortunate managers.

For an effective team a ratio of 1:6 is more common.

It must be taken into account in the planning stage how communication with the suppliers is intended to operate and which resources will be allocated to it. The burden of communication is in my experience a factor of 50% higher offshore than with an in-house team. This means that if there is a managerial boundary in the operation then each manager should only manage directly a maximum of four people offshore.

50% extra communication costs is a big number but it's a number you need to factor in if you want to model the process realistically. Good outsourcing suppliers will give you a list of methods to mitigate the communication defecit such as visits offshore and rotating staff onshore but none of these are free and at the end if the day I think you'll find that it all adds up to a reduction of 50% of the span of control...

What accepting that figure at an early stage does is to allow you to take that cost in-house rather than see it creep into the project in other ways. That way you can own the process of communication leading to an effectively managed project from it's inception and a far greater probability of success.