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Replace Expensive Outsourcing with Excellent Internal Solutions

Feb 27, 2008
Well-found consultants can stay in a company forever;
moving from one divisional trouble spot to another . . . --Robert Heller

I often consider outsourcing's practical limits while visiting my neighborhood gas station. That station gives you the choice of outsourcing gasoline refueling . . . or not, as you prefer. There are four pumps for full service and four pumps for self-service. Rarely are all the pumps busy.

There's an additional charge for full service, which amounts to about 25 percent of the self-service price per gallon. Let's assume we decide on full service.

Here's what the experience is like: The attendants are located inside the station, which is about 40 feet away from the full-service pumps. There's a delay of at least a few seconds until they notice us and cross over to the pumps.

The attendants double as cashiers and also answer the telephone. If the attendants are busy at these tasks, I have to wait longer for someone to arrive.

Once there, I tell the man what grade of gasoline we want to purchase. He starts the pump and heads back inside. I wait until the tank is full.

Whenever the attendant notices that our tank is full and he's not busy in one of his other roles, he comes back out to take our payment. If the payment requires a receipt or change, he goes back inside and waits if the cash register is being used to serve another customer. The attendant then rings in our sale and brings back the receipt and any change.

How long has this transaction taken? It's usually about twice as long as serving myself. Unless I ask, no other service will be provided. My windshield will still be dirty and our oil may be low.

At the self-service pumps, I stick a credit or debit card into a slot and activate the pump in about 15 seconds. I put the nozzle into the tank, set the pump to stay on, and head to the self-service station for cleaning our windows. Armed with a squeegee and paper towels, I clean the windows while the gasoline is pumped.

When I hear the pump stop, I finish the windows and go over to push a button for a receipt. I am usually on my way again within four minutes.

In a typical fill-up, we save at least four minutes, give our vehicle a better window washing than any attendant has ever given us, and keep over $5.00 that would have been paid for the full service.

There used to be a drawback to self-service that discouraged many: Your hands smelled like gasoline for the next two hours. But this station now has handy towelettes next to the pump that effectively help remove any dirt and smell.

Why does anyone use full service? I'm not really sure except if someone is physically handicapped and the task is difficult to accomplish.

Before you laugh this example off, consider that many organizations are using outsourcing that's helping them about as much as full service is helping customers at this gas station. Why does that happen? The most common cause is closing the door to self-service.

Another neighborhood gas station takes that approach. You can only purchase full-service gasoline at that station. If you like full service, you should use that station.

The attendants stay by your car while the gasoline is being pumped. They will measure the air pressure in your tires if you ask them and politely inquire if you want your oil level checked. These attendants always clean your windows, and they do almost as good a job as you would.

What are the drawbacks? It still takes about two minutes longer than self-service and costs about $2.00 more than self-service at the other station.

They try to give you full service, even if you don't want it. Your already clean windows will receive another cleaning. You will be asked about your oil level even if you just changed the oil at that station an hour before.

As you can imagine, this full-service-only station isn't nearly as busy as the station that offers four self-service pumps. The lack of business creates a cost problem for the owners.

Oil companies base their prices to gas stations in part on the volume that is purchased. In addition, the station's overhead has to be paid from pumping fewer gallons. To offset these problems, the full-service-only station specializes in repairs while the first station offers no repairs.

Because of these differences, the station with four self-service pumps is usually priced at least 7 percent lower for self-service gasoline than this full-service-only station's gasoline. Undoubtedly the lower volume plays a role. Providing superior service is probably part of the mix too. It must cost more to have these dedicated, capable attendants.

Here's how companies create the equivalent of all full-service gas stations for their organizations: Someone makes a rule that you have to follow a certain procedure. Before long, the procedure provides an excuse to layer on costs.

You can, of course, help yourself anyway. But you may just help yourself into hot water. These rules are often compounded by creating still other rules until you've created a silly way to accomplish things, whether on an outsourced basis or internally by self service.

I saw an example of rule making one day at The New York Times that led to unnecessary costs. That venerable publication had a rule that its reporters could not accept so much as a cup of coffee from sources.

But for an extended interview, it's helpful to be able to escape the newsroom's noise. Having a cup of coffee together is a natural thing to do while chatting.

The closest location to the newsroom for coffee is the company cafeteria. The reporters guided me there and ostentatiously bought the coffee.

We sat at a table and had a nice conversation. At the end of the interview, I each picked up my cup to carry away.

The reporters politely asked me to leave the cup behind. It turns out that the reporters and the cafeteria staff belong to labor unions.

The reporters have been asked by their fellow unionists to leave their dirty dishes and trash behind on the tables in the cafeteria. The idea is to add more work for the cafeteria staff.

In this way, there will perhaps be one or two more jobs for clearing off tables. There's another risk, too. People cleaning up after themselves might lead to a union conflict, and reporters could find themselves facing a picket line at the front door.

As union members, the reporters would be expected to stay out of the building and not cross the picket line. Management presumably wants its reporters investigating and writing articles rather than standing outside observing cafeteria workers' picket lines. As a result, you don't clean up after yourself in the cafeteria at The New York Times.

Without all of these rules, we could, of course, have either brought coffee or offered to meet the reporters for breakfast or lunch at a pleasant place. It would have been nicer that way.

I doubt if the reporters' integrity would have been compromised by the price of a latte, omelet, or BLT. Without the rule, costs for treating me would have been eliminated. I might even have given a better interview while relaxing in more comfortable surroundings.

Editors and unions aren't the only sources of such practices. Lawyers can easily make up dozens of such rules.

For instance, many organizations are justifiably concerned about proper handling of hazardous substances. Otherwise, someone who is injured by those materials might sue for millions in damages.

There are special containers for such substances, which outsourcers pick up. Typically, the substances are incinerated at a high temperature in a self-contained environment in which the fumes are also cleaned. That sounds like a desirable practice, doesn't it?

But consider the alternative. The kind of incinerator that you need is neither large nor expensive. Many organizations could afford to incinerate their own hazardous materials.

Why? Most of the cost of the outsourcing comes from picking up and carrying around the contents of all those special containers to far away locations. If you incinerate right where the hazardous materials are being used, there's not much cost for picking up and carrying the materials.

What expensive outsourcing can you profitably replace?
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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