We are looking into the following example:

Our company, we call it “The Big Telephone & Telefax Company” BT&T has a total income of 1,000 MUs (monetary units) and an EBITDA of 200 MUs.
Annual IT, HR and some other expenses reach 200 MUs and BT&T decided to outsource these services for a by 10% reduced rate to CASSEA Inc.

The bill of outsourcing:

200 is the original budget
-20 cost reduction BT&T 10%
=============================
180 outsourcing contract
-27 EBITDA 15% CASSEA (on this contract)
=============================
153 MUs to run outsourced services

What happened ?

The BT&T management reduced the expenses for the outsourced services by more than 23% to achieve a 10% cost reduction.
We don’t take the expenses for the transition into account and don’t calculate losses of service quality during reorganisation.

From now on, the best interest of CASSEA has priority over the service to BT&T. And CASSEA can only increase its margins by not delivering certain quantity or quality.

What’s up now ?

Does all this mean, that the BT&T management wasted every year more than 40 MUs because of a lack of “know-how” ?

And what is the benefit to BT&T and its shareholders ?

Conclusion.

?

What a success ?

coming up: Outsourced The Outsourced Services

Core Business / Core Competence

Judging the management abilities of executives might be very controversial, but what makes a good manager ?

When companies are in trouble, management likes to turn the focus to the core business by outsourcing half of the operations. Stressing the core competence is then a regular way of explaining this kind of action.

But what exactly is the core business ?

Just have a look at your local barber. What he is doing is his core business. And don’t take me wrong, he does more jobs than simply shaving. But, thanks god, he is not doing the dental work anymore like a century ago.

I thought, that managing all aspects of an operation is part of executives competence. It is quite obvious that a plumber should never perform brain surgery. But what type of manager is it, who believes that someone else is more competent to manage parts of the companies staff – more efficient in any way ?

Are we good managers if we don’t know how to manage, lets say the office cleaning department ? Or is it a disgrace to organise and monitor the trivial tasks as good as the core business ?

To put this straight:

If your company spends more that 100 Million Dollar or more than 1 Billion Dollar a year on IT, then you’d better make IT to a competence of yours. If you have 50,000 to 100,000 people or even more working for you, then the management of human resources is one very important issue, you do not leave to others, you need the competence to perform this task on the highest level of quality.

And if you truly believe, that someone can do some job much better that you, then you should hire this person and secure this knowledge for your shareholders instead of surrendering essential parts of your business through outsourcing !

coming up: The Effect of Outsourcing on Your Financial Assets

Since more than 20 years outsourcing is big business. Key to success for visionary managers and the universal remedy for needy companies.

You think so ?

The upcoming articles will show, that outsourcing in certain divisions follow some amazing logic of executive employees on key levels in global industry.

Most of the entrepreneurs left the global scene and surrendered the economy to a class of uninspired, career-dynamic conformists.

Since the controller emerged at top level executive management, outsourcing became an obsession. Not only to the disadvantage of the [purchasing] shareholders but also to the detriment of the [quality of] products.

Deceiving annual reports conceal the fact, that each outsourcing contract discounts the value the principal companies.

coming up next: Core Business / Core Competence