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Outsourcing: The Welch Way or the Drucker Way

(or Outsourcing in the post-Welch era)

EETimes: Chip Design Outsourcing from US to Asia is Accelerating soc.culture.indian,, soc.culture.bangladesh
U.S. study reportedly details U.S. chip design exodus EE Times (07-24-2006 3:18 PM EDT) WASHINGTON An outsourcing report suppressed...

No one is credited more than Jack Welch for popularizing outsourcing and offshoring (yes, it is not just offshoring and India). Remember his original formula - 70:70:70? That is 70% of all GE processes could be outsourced; 70% of all that could be outsourced could be offshored; and 70% of all that could be offshored could be offshored to India. The first 70% actually stood - or rather stands - for outsourcing. Like Moore's law in semiconductor, Welch's formula, by and large, is still valid as an end planning formula for large diversified corporations. As a philosophy, well, not so sure.

As a strategy, Jack Welch's rules of business - that held sway over corporate America for close to two decades - are increasingly being questioned. Why, Fortune did a cover story on it recently, calling it The New Rules. Fortune summed Welch's influence nicely.

Fight to Save India
The Fight to Save India! People's Democratic Front of India founded to fight imperialism and globalization India today is experiencing a great economic, political, and cultural onslaught...

...Virtually everything Welch said became gospel - often to the extreme. When Welch embraced Six Sigma, the program began to proliferate all over corporate America. He talked about being the leanest and meanest and lowest-cost, and corporate America got out its ax. Welch advocated ranking your players and weeding out your weakest, and HR departments turned Darwinian.

Welch's rules have been broken not just by the newcomers (I did not say it, but if you hear Google, it is fine with me too) but as Fortune says, also by the born-again mavericks like Steve Jobs. I am not getting into discussing the "new rules" as listed by the magazine, but you can identify with many of them quite closely.

My display suddenly went completely dark
Greetings, everybody. I hope to find some help with my problem. I currently own a Dell Labreastude D505, a little less than two years old, and it runs Windows...

Come to our own debate. If the rules of business laid down by Welch are so twentieth-century, can his outsourcing rules be valid for the new era?

Take, for example, the Debt Management philosophy of focusing on "being the leanest and meanest and lowest-cost" which is increasingly being questioned because it is too much focused on managing cost for the sake of impressive stock performance in the short run.

Much of today's rules of outsourcing have been crafted to serve this objective of making a company leanest and meanest. And it is not just the low-cost vendor selection that I am referring to. In fact, much of today's completely metrics-driven outsourcing agreements are a result of that. So, if you are consistently dissatisfied about your outsourcing initiative, don't blame your service provider or his technology. When you are trying to create tomorrow's structure with yesterday's engineering know-how, you are bound to remain dissatisfied.

But despair not. Outsourcing's rules (set out by Welch) may have run out of its time. Outsourcing as a philosophy is still valid. Probably more than ever.

ThirteenWNET New York's WIDE ANGLE Explores Offshore Outsourcing
August 01, 2006 09:30 AM US Eastern Timezone Thirteen-WNET New York's WIDE ANGLE Explores Offshore Outsourcing Through the Eyes of...

Just as Fortune lists the thousand-year old rule of business - customer is the king - as one of its "new" rules, I would like to point to the reasoning for outsourcing given by the greatest Debt Management philosopher ever, Peter Drucker.

Now, thank God, we've discovered outsourcing, but I would also say we don't yet really know how to do outsourcing well.

Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management.

When you outsource to a total-quality-control specialist, he is busy 48 weeks a year working for you and a number of other clients on something he sees as challenging. Whereas a total-quality-control person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects. That's why when you outsource you may actually increase costs, but you also get better effectiveness.

That is Peter Drucker, explaining outsourcing - you outsource to "greatly improve the quality of the people who still work for you"

Also mark his words - through outsourcing, you get "better effectiveness". How many of those who have outsourced today can say with a straight face they have got "better effectiveness"? The best of them would probably claim "better efficiency".

Outsourcing for efficiency - that is the Welch-way, which still holds valid for certain, tasks, but probably not as an organizational strategy anymore. An organization - business or any other- ultimately has to be effective in what it is trying to achieve. Efficiency is a good tool to be used when needed on the way.

So, are you doing outsourcing the Drucke Way yet?

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My display suddenly went completely dark

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French company to wind up UK call centre to focus on India soc.culture.indian,, soc.culture.bangladesh