Just yesterday I received a call from a businessman looking to outsource a good part of his company’s assembly operation to another country.
While I would prefer that the company keep its operations division close to home, I understand the realities of today’s global market.
In a world where a company’s success hinges on the slimmest of margins, every penny that a business can save on assembly or production costs helps to keep the doors open.
Outsourcing is a solid strategy to save costs but it’s not without its risks.
The recent collapse of an eight-story garment factory in Bangladesh was a warning for every company that has outsourced its production overseas.
As the Bangladesh tragedy shows, every outsourced link along the supply and production chain holds the risk for exposing the home company to litigation and even bankruptcy.
There is an excellent article on this topic in the Harvard Business Review. The article How to Do Away with the Dangers of Outsourcing by Ranjay Gulati, does a great job of both the defining the risks of outsourcing and offering possible solutions.
Using the Boeing Dreamliner debacle as an example, Ranjay illustrates how a defect in one critical outsourced component caused the world’s entire fleet of 787 airliners to be grounded for four months.
Ranjay then suggests a surprising solution to these kinds of outsourcing disasters based on the research of renowned psychologist Diana Baumrind.
The subject of her research was parenting styles.
Rajay does a great job of explaining how Baumrind’s research on parenting style’s can be applied to outsourcing.
He begins by highlighting the research:
Her research highlights four parenting “prototypes” oriented along two dimensions: the level of direction parents demonstrate to their children and the levels of warmth and support. Low levels along both dimensions result in what Baumrind calls “neglectful” parents. High levels of direction coupled with low levels of support produce “authoritarian” parents—what in an organizational context most closely resembles the old command-and-control structure—while high levels of support coupled with low direction lead to very lenient, “permissive” parents who demand little from their children and bestow too much freedom, analogous to the see-no-evil approach so prevalent with global outsourcing.”
According to Ranjay, Baumrind’s fourth prototype, “authoritative,” is a valuable path between the traditional tightly controlled corporate structure and the carte blanche typically given to suppliers to do as they want.
The “authoritative” approach strikes a balance between the two extremes. On the one
I was able to stumble upon that article from Ranjay Gulati and I was also able to read some reactions to it. A blogger said that one can never get away with the dangers of outsourcing because it is business, and business always comes with risks. However, one can overcome it and get through with the risks. What do you think about it?