Managing Outsourcing and Intellect:
Discussion with Dr. James Brian Quinn
Dr. James Brian Quinn is the William and
Josephine Buchanan Professor of Management at the Amos Tuck School
at Dartmouth College. He has been writing about the innovation process
since 1951 and authored some of the first articles on core competencies,
strategic outsourcing, as well as books that set the conversation
for the management of intellect. The Outsourcing Institute talked
to him about outsourcing, management strategies, and his new book,
Innovation Explosion: Using Intellect and Software to Revolutionize
||What are the prevailing
trends in outsourcing related to managing intellect?
Let's first look at outsourcing
trends. Outsourcing started with companies outsourcing
physical parts. Now the big shift has been to outsource
intellectually-based service activities like research,
product development, logistics, human relations, accounting,
legal work, marketing, logistics, market research. If
you are not best-in-world in doing something, and are
doing it in-house, you are giving up competitive edge.
You could outsource to the best in the world, up the
value and lower the cost.
With intellectually-based service
activities, the job of coordination becomes more interesting.
You are now dealing with best-in-world suppliers of
intellect, as opposed to very good suppliers of a physical
product. We had more skills inside the company who understood
something about how to make a physical product, there
were more guidelines for that and it was easier to outsource.
It is much more difficult to outsource legal, financial,
That is why there is shift going
on in the management of outsourcing. You actually need
a higher quality management in order to outsource successfully.
||What is managing
intellect, and how is it different from managing physical resources
Managing intellect is a combination
of a human and software management process. Investment
is not a hard investment in equipment or physical resources,
but in training, knowledge generation, knowledge capture
and knowledge leveraging.
The critical management differences
are: you can't give orders when managing intellect.
Giving orders is converse of what you are trying to
accomplish. You want the person to be free to generate
the idea. People, education and software are the critical
resources, and the old measures of performance have
become irrelevant. Return on investment doesn't mean
a lot when you don't keep track of the I
that you put into people, i.e. education and software.
And contrary to physical assets,
one can leverage the intellectual ability almost indefinitely.
The physical can only produce so much plastic or product
or cars. Once you have an intellectual idea, it can
be leveraged by everyone in the world: who uses it,
who improves on it, who makes it better. The consequence
is you benefit from their input.
||So, outsourcing management
requires an understanding of the dynamics of the industry, as
well as the human dynamics of intellectual work?
Yes. You need someone who understands
the management of intellect, as well as someone who
understands the particular type of activity better than
anyone used to understand it internally. It is actually
harder to manage and outsource intelligently if the
vendor is in the best-in-world class. This creates some
complexity, but the leverages are huge.
This is why, at least in part,
people have begun to move toward the chief resource
officer (CRO)-type capability. As you outsource intellectual
activities, as well as physical product, you need to
have someone who can coordinate this strategically for
the company. Someone to make sure the supplier is not
in conflict with you, for example, to monitor whether
they are supplying major competitors, or that they are
sufficiently bound to you in the design world so your
designs don't sneak out the door. You have to have methodologies
and management capability to make sure the supplier
is going to work on your behalf at all times. This takes
a different set of skills.
Also, the outsourcing person
has to be able to learn from the supplier at a prodigious
rate, and learn from people in the business, to stay
at the frontier of the field. This idea has been around
for a long time. Scientists know perfectly well that
they can't be at the frontier of everything in their
field. They have their network of resources they chat
with, correspond with and do papers with, to make sure
they are at the frontier. That sort of mental output
has become essential to outsourcing.
outsourcing can actually enhance your firm's understanding and
ability to compete in the industry?
|People found out
early in the outsourcing of hardware and services to set
up the process of management properly. If they did that,
then the company doing the outsourcing actually learned
more from its new suppliers than it ever would have learned
from having a sole source internally, unless it was best-in-world
of that activity.
||What changes need
to be made in a more traditionally organized firm in order for
it to adjust to the shifting terrain of business and use outsourcing
to its greatest advantage?
The first thing you need to do is reassess
the managers themselves. We used to promote managers for their
capabilities within a function. They might be brilliant designers,
lawyers, etc., but might not have the capabilities needed
for managing outsourcing. This means being able to assemble
information from outside sources. They need to have the ability
to evaluate alternative cost structures and to understand
the strategic risks of outsourcing to one partner versus another.
A good outsourcing manager must be able to motivate partners
to do what is needed and to do joint planning. They must be
able to monitor the deal - through software and personal contact
- without interfering, to get the lead signals they need to
maintain strategic control. They need a totally different
set of management skills, and the real essence of these skills
is a learning capability and willingness.
||What are the other
key elements in maximizing returns on outsourcing?
This is really important - the two
things that are imperative as you go into an extended outsourcing
strategy are, first, to build up the management capabilities;
and second, the software capabilities to help monitor and
allow management to understand and capture the knowledge-base
of the organization.
||How important is
top management in implementing effective outsourcing strategies?
Management must always support the
strategies. One of the most interesting things I've run into
is that top managers love the concept of outsourcing. Customers
love it. It is middle managers who hate it. And the reason
is, they feel the threat that their empire or whatever it
is may be outsourced. So, somehow or other, to do this properly,
management has to support the strategy.
||What can a world
of outsourcing services and more refined core-competencies promise
for the future?
It is a wonderful world. We will have
many more, smaller companies, and they will be much more highly
innovative because they are more flexible and have concentrated
resources. These smaller companies will then feed into a series
of companies who have other core-competencies - assembly,
We have found that as companies downsize by intelligent outsourcing,
they eliminate activities they weren't good at and people
who were not doing much value-added work. Recent studies
show that those who left the company are in better jobs, smaller
companies, and a lot happier than they were before.
We can also look forward to a very rapidly-accelerating innovation
process worldwide, where people can see and modify innovation
through software and add an interesting element to the innovation.
An estimated two billion new minds will be connected into
the world communication system over the next decade or so.
All of these people can contribute to this knowledge acceleration
game. They can be outsourcers of various parts of the activity
and the result is: the value of the customer goes up at a
tremendous rate, and the competition keeps cost down. This
type of innovation is less costly and results in rapidly growing
real-value in the world economy.