Cost - Step Up To Being The Best In The World Through Outsourcing

Most organizations will tell you that they are the best in the world at what they do. In most cases, that's more pride talking rather than reality.

Over the years, I have conducted many worldwide searches for organizational best practices. Invariably, I find that most organizations are well above or well below average in each particular practice.

You can picture this occurrence as a steep bell curve around a median that's well below the average performance. The bell curve also has two long tails with one spread more to the upper side of performance reflecting that the performance spread between the best and the median is much wider than the spread between the median and the worst.

The curves are also skewed so that there are many more below average performers than high performers. In essence, such a bell curve is no more than a graphic expression of Pareto's Principle that 20 percent of the efforts will account for 80 percent of the results.

Why, then, do so many organizations overestimate how well they are doing? The answer usually lies in two types of ignorance:

1. Organizations usually don't know how well they are doing in a given activity.

2. Organizations rarely know which other organization is best at any activity, how well the best does, and how that organization achieves the enviable result.

But I learned an even more important point from these studies: Where an organization ranks in performance for its activities is randomly related to how important that activity is to the organization's success. For instance, a business in a low-priced commodity business that will flourish only because of low costs may instead be performing best at providing sturdy packaging, something that doesn't improve its cost position nearly as much as would top skill in most primary processing activities.

Why does that mismatch occur between capabilities and needs? Once again, the foundation is ignorance: Organizations seldom measure themselves to find out how their effectiveness compares to the best-in-the-world for their important activities. To be fair, busy operating people aren't likely to have the time, skill, or knowledge to pursue such investigations.

As a result, a good place to add valuable outsourcing help is in making these measurements. The measurements will probably reveal something important: No one else is very good at all the critical activities.

By seeing how your competitors stack up at the same time, you should be able to identify a few areas where improvements by you can create decisive advantages. Otherwise, you'll be pushing everyone in your organization to get a little better on everything while ignoring the opportunity to concentrate on the largest part of your untapped potential.

Outsourcing can provide an additional step in making rapid progress: Engage the best at what you need to do well. Hire these organizations to outsource for you or provide the learning you need.

Here's an example of how much difference that decision can make: For special fund-raising events, Habitat for Humanity will build a completed home in a few hours. Yet that same activity usually takes months for commercial builders.

Ironically, those who organize these speed builds are often the same people who work as supervisors for the commercial builders. What's different? Habitat studied the lean manufacturing methods employed in the automobile industry and applied those best-in-the-world processes to home building for this special promotional purpose.

You can put that accomplishment into context by remembering that many rural communities during frontier days in the United States completed a barn raising in a single day. The barn would usually receive its paint on another day, but the rest of the construction would be accomplished by the neighboring farmers working together for a few hours. A key organizing principle for speedy performances was having all of the materials in place and ready to be used in the right order by people who knew what needed to be done next.

There's an unexpected advantage to this approach of using outsourcing to direct your outsourcing focus: Even leaders who know little about a company's operations can still direct the organization to great operational improvements. When an operating expert who heads a business or company wants to devise her or his own solutions, those internal solutions are likely to fall short of what the less informed leader can accomplish by finding the best answer outside the current organization.