What Psychology Can Teach You About Global Outsourcing.

outsourcing, international business, international attorney, supply chain, miami international attorneyJust 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 hand, a high level of direction and support is provided to children—and by extension corporate partners and associates—while on the other hand, they are given freedom within a well-defined structure.

Similar to authoritative parents, an authoritative outsourcing manager resists the temptation to micromanage but never leaves responsibility for work conditions or quality control decisions in the hands of  a company’s partners.

Ranjay offers several reasons why this approach fits the corporate outsourcing model best:

Implemented with care, this freedom within a framework sharpens and transforms value creation and innovation. It sets the rules that let outsourcing partners be more creative, efficient, and customer focused. It also enables faster response to shifts in the market—something especially important as innovation continues to flow globally, rapidly, and often from unknown sources.”

Those are all valid points.

I would also add that implementing an authoritative approach to outsourcing greatly minimizes a corporate parent’s exposure to potentially disastrous litigation.

The takeaway from all this is to find the middle ground in your company’s “parenting style.” Doing so will go a long way towards limiting any risks associated with outsourcing.

What do you think?

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