The BP oil spill disaster: How not to outsource
July 8, 2010
Stefan Stern has recently written a thought provoking column for the Financial Times about BP and the trouble with outsourcing. And although Stern is clearly a critic of outsourcing, the whole BP Gulf of Mexico disaster clearly showed how not to outsource and what can happen when the unexpected is not taken into consideration when outsourcing.
Just what are some of the lessons that the BP spill has for anyone considering outsourcing? For starters, companies should be asking themselves the following questions before signing an outsourcing contract:
Who is Responsible?: Stern pointed out that one of the more unappealing aspects of the BP disaster was the sight of executives from BP, Transocean (the rig operator) and Halliburton (the maintenance provider) all seeking to downplay their responsibility for the gulf oil spill disaster. Obviously responsibility for the disaster is shared by all parties but no one seemed to be able to agree as to what proportions this responsibility should be shared. In other words, all three parties should have discussed a “what if” scenario before any contracts were signed rather than wait until after a disaster and have the discussions take place on Capital Hill in front of a national TV audience.
Are Outside Experts Really Experts? Stern noted that the trouble with outsourcing is that companies may fall for the illusion that by bringing in outside “experts,” they no longer need to pay complete attention to whatever function is being outsourced. However, this could not be further from the truth as at the end of the day, it will be you who must answer to your customers, clients, regulators and of course Capital Hill and a national TV audience should something unexpected happen.
Whose Reputation Will be at Risk? Stern quoted Rupert Younger, the director of the Centre for Corporate Reputation at Saïd Business School in Oxford, as saying that you can outsource your operations, but “you cannot outsource your reputation.” In other words, even if your contractors cause the biggest oil spill in history or perhaps loose some of your clients’ confidential data or cause a disruption in your service or some other “unexpected” event, its still your reputation that will be at risk and it will likely be your responsibility to clean up the mess they make.
How Lean is To Lean? Stern commented that hard core outsourcers can reduce their company to an emaciated condition where they are unable to survive an unexpected shock to their business model. In other words, just think of your business being slimmed down to one of those emaciated waif looking models that were popular in past decades.
Stern concluded his column by saying that its time for management to insource responsibility and to also get a grip on their organization – points were noting even though they were written by an obvious critic of outsourcing.
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At the end of the day, it is the company who is responsible for the reputation. So if you outsource make sure your outsource vendor knows and cares about it.