It’s that time again; the earnings calls for CRM, ERP, hardware and services vendors are being scheduled, rehearsed and delivered to shareholders, industry and financial analysts. What’s common across the more than two dozen calls I’ve listened to that span CRM, ERP and SCM software, hardware and services companies is that every CEO is offering up a spin on how global outsourcing is making their business even more cost-competitive, responsive to global markets and stronger for the strategic long run.
With all this apparent success at both software and hardware outsourcing, I began to feel like myself as a golfer, sizing up and playing Phil Mickelsons. In short, he has a great long game, a great short game, and I play badly on a good day even on a miniature golf course. But every CEO cannot be the Phil Mickelson of outsourcing. I suspect there are some Cinderella stories in there, but for the vast majority of them, getting either software or hardware outsourcing right takes lots of time, many hours of practice, and the patience of Job to make it all work out.
In short, nothing valuable ever comes free, and all these CEOs on conference calls this quarter tell you about the strong successes at outsourcing, forgetting to mention the curve of pain they have ridden, in some cases for years, to get this strategy right.
For companies outsourcing manufacturing, the course has been especially unforgiving and even brutal for some of them. Like strong winds that whip across the front nine at Pebble Beach, any change in quality assurance, manufacturing engineering, and even the smallest wisp of an Engineering Change Order (ECO) can play havoc with the lay of the ball.
Jack Welch Doesn’t Give ‘Mulligans’
As the calls went on, I realized that CEOs are giving themselves outsourcing mulligans — a free shot sometimes given a golfer in informal play when the previous shot was poorly played — and the leaders of hardware companies are the biggest culprits. Jack Welch said in his autobiography that he does not give mulligans, but then again he had Six Sigma to guide outsourcing production efforts — in short, a great read of the course for manufacturing.
The real takeaways from earnings calls where outsourcing is proclaimed as the new success strategy are:
- Software outsourcing really is delivering results. There is less of a variation between what’s happening in these companies and the claims they make on their conference calls. There are several situations where outsourcing application development actually saved special pricing request, partner relationship management, order capture and even configuration strategies. Infosys, HCL and Wipro are learning from customers what works and what doesn’t. Further, companies doing global outsourcing for software development had less of a variation between what their 10Ks at the SEC said and what the CEO said on the conference call.
- Claiming manufacturing outsourcing worked the first time is like making an eagle putt with a wedge. Sure, it could happen, if you have the best read of the processes and have a very tight relationship with the outsourcer. But then again, the majority of the time this strategy is as tough as trying to clear a water hazard 100 yards from the tees. Tough to do without a solid approach strategy, lots of focus, luck, and perfect conditions. Just get another ball out now and prepare to swing again.
- Meet your global outsourcing partner salesforce.com. It’s a global playing field now, and outsourcing to salesforce.com fits with how so many companies work today — this company has found a way to get into the productivity workflows of its customers. Being located in San Francisco versus Bangalore — what’s the difference? Isn’t it all about value and usability delivered? It’s time for companies to get over the global outsourcing paranoia and realize everyone has to compete at a global level every day to survive — that’s the new reality of outsourcing, it sharpens global competitiveness.
- CEOs of hardware companies are giving themselves an extra drop. Any hardware company you track has an interesting story to tell about outsourcing right now. The most recent 10Ks filed with the SEC talk about the many costs and huge investment in outsourcing, yet the CEO talks about offshore manufacturing like it’s effortless. Somewhere between these two extremes is the truth, and it leans more to going over engineering, quality, service and manufacturing processes over and over again like any golfer practices his or her swing. Outsourcing really is like golf. Like golf, companies struggle with performance and are anxious about little improvements. Like golfers, there is always a recasting of the toughest round in the best possible light.
Across the board this earnings season, no one knows how many outsourcing mulligans CEOs of software, hardware and services companies took. But there is one certainty: Come next quarter after another round, the CEOs will all be back, and some might tell us about the experience curve they have been down and lessons learned. But for most, it will be a description of how they got their outsourcing strategy pin high. Nothing comes for free, and, especially for manufacturing companies, the lessons can be costly and enduring.
Bottom line: Outsourcing’s allure is the same as golf: freedom to hit away and play the game as you specifically want to. Ironically both outsourcing and golf make you earn that freedom, and for hardware manufacturers, it’s better to own up to your handicap now, and don’t mulligan away the future. For software companies, outsourcing is like the course you always wanted to play — and in the case of CRM, the path is proven and worth a round.
Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research. He currently works in the software industry.
This story was originally published on July 30, 2004, and is broughtto you today as part of our Best of ECT News series.