The benefits of outsourcing have been spoken about on a global scale. The gray areas however, have never reached the same scale of elaboration. An eight story garment factory in Bangladesh recently collapsed due to various structural issues. With too many factories operating in a space meant solely for offices and shops, the collapse did not come as a surprise to many.
The infamous collapse however brought into global light, the question of accountability, safety and ultimately control in the domain of outsourcing.
The lure of the business model
The drastically lower costs of running operations with the outsourcing model is immediately apparent. The business process dramatically reduces corporate boundaries, leaving business owners free to think about furthering operations.
Since the business owners can now once again think like entrepreneurs, the product offerings and services will naturally receive boosts. The challenges of managing large staff or employee bases is greatly minimized. With the benefits and awe-inspiring advantages, it seems almost too good to be true, a way to conduct business without the need to supervise the employee base. The business model without an apt supervision and guidelines, however is greatly flawed as demonstrated by the collapse of the garment factory in Bangladesh.
The pitfalls of the lucrative business model
The heavy reliance on external companies and organizations translates into a certain loss of control for the clients. With externalizing operations, the benefits, risks and regulations of staffing are also externalized. When there is a chain of operational stops, each stop provides a certain risk factor which means that it directly affects the parent company. Despite the lack of control, the parent company or the company that is sending the work overseas to external agents is still liable to litigation and the possibility of losing their viability in the marketplace. For example, Walmart, a client that outsourced their garment production to the factory that collapsed in Bangladesh is facing a measure of controversy for not ensuring adherence to safety regulations and verifying the provider’s reliability.
The Boeing example
Boeing jumped on the outsourcing bandwagon whole heartedly only to have its fingers burned. The 787 Dreamliner was a Boeing offering that would be assembled with parts from manufacturers across the world. Swedish cargo doors, German-made cabin lighting and South Korean wing tips were only a few parts with recognizable sources that would go on the Dreamliner.
The vast number of parts and pieces not manufactured within the control of Boeing meant that the pieces did not necessarily fit in the way they had envisioned it. Three whole years of development were spent to overcome the setbacks let into the manufacturing by outsourcing.
While Boeing had a very public battle with outsourcing, numerous other companies across the globe have faced often ongoing battles with the business model. Foxconn and Nike are amidst other companies that have had to make public announcements of their shortcomings thanks to the flawed model of externalizing operations.
Apple, the company known world over for their technological offerings is now engaged in a battle with one of their providers, Samsung over an infringement of patent battle. While each of the cases listed above brought a new aspect of outsourcing to the global limelight, the garment factory collapse brought the human cost of the operation into focus.
Will a one-time solution work for the issue?
When the building collapsed, a number of renowned fabric retailers chipped in to fund safety improvements, particularly fire and safety improvements, in Bangladesh. The step is now seen as a recognition of responsibility especially since the issue of ownership is greatly watered down in this particular scenario. Although the solution is a step in the right direction, is it a sufficient answer to a problem that is not contained in one country, one industry and is not a rare incidence?
The questions that the business model brings need answers. Instead of thinking of outsourcing as a free for all, the issue of liability needs to be taken seriously. A systematic method behind moving business operation, how, when and why they need to be moved should be carefully examined by corporations.
Can parenting styles give clues to managing business relationships?
Professor Ranjay Gulati thinks that the psychologist Diana Baumrind and her seminal work on parenting styles holds the solution to the problems of outsourcing. The approach that most corporations are taking with their “partners”, Professor Gulati thinks, is the approach that extremely lenient or permissive parents take with their children. The parents give the children too little direction, too much freedom and hold a see-no-evil approach.
The extreme opposite, the authoritarian approach is also not a good method as it has too much direction and too little support from the parent company. Low levels of support and direction leads to neglectful parents, another undesirable approach.
With so many wrong directions, is finding the right direction possible? Baumrind has one last prototype, the answer to the outsourcing problem. The authoritative style of parenting is the happy medium for corporations and providers as it has the fine balance of support and direction.
Freedom to operate within a well-defined structure is the highlight of the parenting style. In the case of children and by extension the service provider, there is a relative freedom to operate within the restrictions offered by the local government and their rules while still adhering to the framework laid down by the parent company.
Benefits of parenting style
While this style is demanding, it is also responsive. It encourages self-regulating behavior along the directions laid out by the larger corporation. There is no micromanagement, which allows a certain freedom that does not come with the restrictive over-involvement often thought to be the best method. Key decisions like quality control and work conditions are set by the clients and have to be adhered to.
This framework is thought to encourage creativity and innovation in the service provider. The rules allow them to focus on the customer instead of worrying about setting up a viable framework. With ground rules firmly in place, market shifts can be quickly responded to. With the current global market in a state of constant motion, it is best to adopt this strategy to regain some of the control that seems to get lost in translation.
This authoritative control features guidelines and control measures designed to handle crisis moments. Through this control method, adequate support given to the service provider assures them of a working relationship that is co-existent. All the stakeholders from the corporations to the service providers to the employees whether temporary or full time will likely appreciate the measure that affords control to the client company while still giving the service provider freedom to execute as they deem is right.