In 1940, the famed actor Edward G. Robinson took on the role of Dr. Paul Ehrlich in, “Dr. Ehrlich’s Magic Bullet.” In the movie, we learn that Dr. Ehrlich that developed the first effective treatment of syphilis, Salvarsan. Before Salvarsan, drug therapies were ineffective, often incorporating poisonous substances that were as likely to kill as cure. In his search for a cure, Ehrlich coined the term “magic bullet,” for specific chemical agents that target specific diseases.
His 1st compound was called compound #1, the next #2 and so forth. In the movie Ehrlich believes that it may take as many as 100 experiments to find the right formula. Salvarsan was compound #606. The very important lesson from Dr. Ehrlich: most experiments fail. The best way to find your magic bullet? Run through enough failures to find the hidden success. That’s a powerful lesson for many other endeavors. Especially outsourcing!
When the financial markets collapsed in 2008, many corporations had to jump into outsourcing programs. They had to act quickly, and their main motivation was to roll out programs that could immediately cut costs. When everyone does the same thing at the same time for the same reason, you have the social equivalent of a laboratory experiment. Wait a few years and you will find that some of these projects worked out, some failed and the rest… probably the majority… fall somewhere in-between as “partially successful and partially failed.”
If we sift through these cases and compare the successes to the failures, we can learn what works and what doesn’t. Usually, it is difficult to obtain the inside information on what happened in a failed outsourcing project. However, if we were to focus on government outsourcing we can learn a bit more, because government contracts tend to have public disclosure requirements.
In a previous blog, we talked about the failure of the contract between G4S and the UK government. The contract was for security services at the London Olympics. Just a week before the Olympics began, G4S officially notified the government that the 10,000 security guards they committed to would not be provided. Instead, they would provide about 7,000 guards. G4s requested that the government find a way to provide the remainder. Compare this to IBM contracting with the state of Indiana to take over the welfare assessment process (and other welfare functions).
In the case of the IBM contract, it ended in a lawsuit that recently concluded. The G4S contract is more recent, and may lead to a lawsuit but hasn’t yet reached that stage. In comparing these two outsourcing projects, let’s give a nod to Dr. Ehrlich and call our findings Formula #1, or rather formula “TOO”.
Too Big: In both cases, these were mega deals. The bigger the deal, the greater the risk. There can be real advantages of scale in having a single contract, but you need to offset those benefits with the cost of escalated risk. When a big contract fails, it’s a big and often public failure.
Too Unique: Both G4S and IBM tried to do something that had never been done before. Outsourcing is better used for a well documented process that has been performed before. Preferably, a process that has been done repeatedly, and well. Taking on something that has never been done before or never been done well, is far more likely to fail when outsourced.
Too optimistic: The G4S project failed (according to G4S) because they attempted to control costs by not bringing in candidates for position, “until they were needed.” IBM’s failure started with the lack of a standard, or the enforcement of, definition for welfare eligibility and many highly political constituents who disagreed over the definition. In both cases, assumptions were made that were unjustifiably optimistic that these core issues would work themselves out.
Undoubtedly, there are many contracts based on “Formula #2," and we can expect to read about more of these projects as stories in the newspapers and (unfortunately) cases in the courts. Don’t be one of them. These are highly (if not always easily) avoidable mistakes. If you’re honest about the conditions of the project and the capabilities of your resources, you are much more likely to find your formula for success!