Printout

Nobody ever told me this, it’s something I worked out for myself, but there are two kinds of outsourcing:

1) We have no idea how to do this so we need outside help.

2) We know how to do this, and we could, but we don’t have the time right now.

If you run a capable engineering department in an oil company, you find yourself doing a lot of the latter. Back in Nigeria I ran a team of about a dozen engineers, who had the capability to do pretty much any design we’d need. But we didn’t have the capacity, so we’d outsource – what my lead piping engineer would call “hiring pencils”. Ordinarily I’d say my experience outsourcing engineering work in Nigeria was worthy of a post all by itself, but in all honesty I could turn it into a whole book. Or a broadway musical. But I digress.

I deliberately chose to keep my engineering team small and avoid the empire building so beloved of many modern managers, mainly because I could see the work came in fits and starts and I didn’t want to hire someone only to have to lay them off a couple of months later. In a country like Nigeria that is grossly irresponsible, but it happened a lot. So I ensured we had a core competency and then outsourced the leg work to someone else. This ought to be uncontroversial, because you’re not losing expertise, nor relying too heavily on outsiders to execute your core business (although oil companies do this more than they should). But it’s surprising how often even senior managers don’t quite understand when to outsource and when to keep something in house.

In my first proper engineering job I remember a bundle of documents had to be taken to a client about half an hour away by car. The project manager got a quote from a taxi firm for about a hundred quid, but the director stepped in and said this was extortionate and instead ordered one of the engineers to drive there and back in his car. It didn’t seem to occur to the dolt in charge that having an engineer drive documents about isn’t the best use of his time, for which he was paying heavily. It’s not like everyone was under-utilised at the time, either.

The most memorable example was again when I was working in an oil company, and we we’d just awarded a giant EPC contract to a major international engineering company. The contract document was like War and Peace, hundreds of pages of technical stuff and legalese. Someone in charge decided quite reasonably that he wanted a copy in his office, and ordered the department secretary to print it out. Then someone else wanted a copy, and asked her the same thing. Pretty soon the entire floor’s printers were either smoking with heat, out of toner, or the buffer so clogged up nobody else could print for days. The poor secretary had to send different parts to different printers and run around between them trying to make sure she had the right parts in the right order: the entire contract was 38 separate files, with the commercial part removed for confidentiality reasons. Everyone in the department was complaining they couldn’t print, and people’s print jobs would get swallowed up somewhere in one of the contract sections. It wouldn’t surprise me if in some future court case a lawyer opens what he thinks is the clause on Marine Warranties and finds a valve datasheet where pages 3-5 ought to be. Or a presentation telling everyone to use less paper.

Now oil companies are not known to be hotbeds of common sense, so they could perhaps be forgiven. Also, outsourcing anything – even something simple like printing – was probably not straighforward where we were at the time. What surprised me more was when I turned up to the offices of the engineering contractor in a western city and found their secretary had received identical instructions from her management, with the same side effects. Now I needed a copy of the contract myself, and on the way into the engineering offices I’d spotted a print shop on the ground floor. I put the files on a memory stick, numbered them so they were in the right order, and went downstairs. An Asian chap greeted me at the counter, and behind him was a printer the size of a car. I gave him the memory stick, nodded, and asked me how many copies. Two, I said. Then he asked if I wanted it bound, because he could do that. Sure, I said. He told me to come back the next morning, which I did. Waiting for me were two perfectly printed and bound copies of the contract. He charged me around $75 for them both, which I slapped on expenses.

I put these on the shelf in my office. One was marked to stay in my office, the other could float around a bit. When my manager flew in to visit me, he immediately spotted it. “Where did you get this?” he asked. I told him I got it printed out downstairs. He asked if I could get him a copy, so I nipped down to the print shop and ordered another. Then a week or so later his boss came out, and I got a copy for him too. Soon word got around in the project headquarters that Tim knew how to get proper copies of the contract printed out, and whenever I got visitors they came with orders to bring back one or two with them.

Occasionally, whenever I wonder exactly what it is I’m paid for, I’m reminded of this episode.

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25 thoughts on “Printout

  1. There’s a third category;

    3. We know how to do this, we know we should outsource it but we prefer doing it so we can pretend we are too busy to do the unpleasant/difficult/boring work that the shareholders would want us to do.

    QV all transactional finance work, most IT work and probably about 60% of most of the work in an open plan office.

    A quick way to check if you work for an organisation guilty of this is to check if there are any perks relating to how many staff reporting to a manager. Executive assistants, chief of staff, job titles, etc.

    If so, the organisation has incentivised building an empire not delivering value.

  2. A quick way to check if you work for an organisation guilty of this is to check if there are any perks relating to how many staff reporting to a manager.

    The trouble is, the Hays system (and probably others) of job evaluation uses number of reports of a measure of seniority, and therefore pay. They are therefore incentivised to employ as many people as possible. This is rife in the developing world.

  3. There is another category that I like to think is the most common reason for outsourcing across businesses. It is that we know how to do this, but not well nor efficiently. We want to reduce costs and focus on our core skills so we will outsource IT, HR, Transport, building maintenance, etc. so we don’t have to worry about it.

  4. We want to reduce costs and focus on our core skills so we will outsource IT, HR, Transport, building maintenance, etc. so we don’t have to worry about it.

    True. Problem is, companies then start to do this with their core competencies and delude themselves into thinking “management” is now their core business. See Carillion, for example.

  5. Agree. Because they think their core competencies can we narrowed down to a couple of key areas as your example. I worked for a chemical company once who manufactured and distributed speciality chemicals. Despite my warnings they outsourced the delivery and we ended up with several unhappy customers. In several cases I ended up delivering chemicals in my car due to inflexibility and incompetence. Doubt we made any profit on those.

  6. “but the director stepped in and said this was extortionate and instead ordered one of the engineers to drive there and back in his car.”
    It sounds to me that the director should have done it – best use of HIS time.

  7. Having mostly worked for family run SMEs, I’ve spent quite a bit of time trying to get them to outsource properly.

    My current employers is a case in point. We are an engineering firm who (at least in theory) have the capacity to make almost anything imaginable in house. The problem (at least when I arrived) was that there was a sort of pride in doing everything in house.
    In practice this meant, say you wanted a rolled section of plate (we use half a dozen a year, all bespoke) – instead of spending a couple of hundred quid with an outfit whose core business was rolling plate, our staff would spend literally days digging out a dusty set of late Victorian piramid rolls (they were so old they were designed to run from overhead line shafting, which had then been replaced by a constant run motor with an air operated drive clutch – a more fickle arrangement to control would be hard to devise) from under the mound of detrius that would have accumulated since they were last used, then rolling the offending plate and getting it wrong, using the 150T press to push the overroll back out, to then having another go… we could (and did) spend thousands on labour and materials to avoid a few hundreds on an outsource component.

    Same with cutting sections of plate – we would buy in 12mx3m sheets of 16mm plate (we didn’t use a great deal of plate – one such sheet in each common thickness would last us over a year) and painstakingly gas cut it into shapes (almost all less than 1m²) rather than have the plates plasma or lazer cut to order. Just getting the big plate out of storage, setting it up, cutting a plate out and putting it away again often cost more in labour than the piece would have cost plasma cut…

    Once I ended up as management, a lot of these practices got ended sharpish – which was partly how I got things from an annual loss to at least breaking even!

  8. William – is that distinct from “We know we should outsource it, but doing it ourselves affords us better opportunities for skiving”?

    Not that I’d know anything about that, oh no

  9. Occasionally, whenever I wonder exactly what it is I’m paid for, I’m reminded of this episode.

    I thought you were paid to write Broadway plays.

  10. “2) We know how to do this, and we could, but we don’t have the time right now.”

    I’ve seen this be a disaster too: it’s often just as time consuming to set up, monitor and then integrate the product of any outsourcing job as it would be to do it yourself – essentially the exact opposite of theProle’s example.

    Unfortunately, this problem applies to your case 1 too: it’s often very hard to specify properly the thing you can’t do. The public sector is archetypally ghastly at this: in order to specify the contract (possibly with the intent that it’s written in such a way as to ensure that your mate gets awarded), they end up specifying not what the outcome ought to be, but how it should be done. Net result, interesting new solutions (which are completely outside the experience of the goon in procurement) can’t be deployed.

  11. Occasionally, whenever I wonder exactly what it is I’m paid for, I’m reminded of this episode.

    Life’s funny, isn’t it? Go forth into the world with all that advanced education wondering how on earth you’re going to apply these complex theories and then end up adding value by applying simple common sense to menial problems.

  12. I found my self nodding along to a lot of this, but ultimately it comes down to a lot of people (not just in management) just not being very good at their jobs.

    Incentives only work so far; some people are so stupid that even if you jabbed them with a cattle prod every time they made a bad decision they’d just be angry that you kept prodding them and never make the connection between their bad decisions and the entirely foreseeable outcome.

    This is why I’m a huge fan of at-will employment laws and breaking the power of labour laws to keep dysfunctional people employed because it’s too expensive to fire them. Git gud or get out.

  13. 3) We know how to do this, and we could, but we think we could get it done cheaper by someone else and get rid of some of those our expensive employees.

    You must have seen this in the oil industry. Lots of examples of companies “right-sizing”, paying staff to go away, and shortly thereafter outsourcing the work that still needs to be done to the contract firms to which their former staff migrated. All because managers failed to right-size (reduce) the work load before they right-sized (reduced) the staff.

    Not just the oil industry. Boeing’s problems with excessive outsourcing during the development of the 787 are famous (infamous).

    But let’s not ignore one of the main benefits of outsourcing — managers can then blame the contractors for anything that goes wrong, and avoid taking responsibility.

  14. One reason large companies often have a minnow come along is how fast a minnow can adapt, and one thing with this is outsourcing.

    If you’re the owner or within 2 layers of the owner, it’s very fast to spot and opportunity and get onto it. In large companies, there’s a mountain of crap to deal with in purchasing which adds a lot of friction, and in the case of quick wins, they don’t get done. Hundreds of quick wins over a few years can dramatically improve your process.

  15. I worked for a firm of insulting engineers who didn’t realise that they weren’t in the engineering business, they were in the labour broking business. They had all these good engineers sitting around, helping to prepare tenders, in the hope that we would win them. I managed to sell my idea to my boss, the CFO, and as natural attrition reduced the permanent headcount, we only took on engineers to run the contracts. That saved quite a few bob.

    They also thought that they were in the civils and construction business whereas in fact they were in the project management business. They plucked up the courage to bid for an IT hardware contract and got it and it worked out very well. Until, that is, the MD appointed his daughter as Chief Schmoozer and pretty soon we had a Schmoozing Department full of pretty young things earning megabucks who never, as far as I know, brought in a cent of business.

  16. I would look at outsourcing in a similar way as to how I look at such things at home. Though at home there’s a fun factor involved. But specific to business I would ask myself:

    If it is something outside my area of expertise, is it something I can build on, possibly in developing a new product? DIY
    Is it a small, well contained job with well defined interfaces, where there is some degree of competition amongst providers such that there is a viable market-set price? Outsource

    Is it something I can hand to younger, possibly intern types, possibly something dealing in a new technology that my old guys don’t have time for right now?

    Though in general, to me the key points in making the decision come down to interfaces. How many are they, how hard are they to document, how intuitive are they? And by interfaces I mean both in the product itself and in the human-oriented contracting, both internal and external. Costs for the most part will be reflected in the market. If market costs are high, which is what scares managers, be very, vary wary of doing it in house unless you understand EXACTLY what it is you are proposing to do. Those high costs are most often an indicator of unseen danger. Only in very limited competition markets are those costs unreasonable.

    But one thing to concern oneself with in outsourcing, something that is a big problem in software, is be very, very sure they’re not trying to hook you on their crack. Low initial cost/high consulting fees being an obvious indicator.

    As for It didn’t seem to occur to the dolt in charge that having an engineer drive documents about isn’t the best use of his time, for which he was paying heavily. It’s not like everyone was under-utilised at the time, either. Exactly. This decision needs to be made in consideration what you would pay that guy overtime hours plus benefits to do relative to the delivery boy and and how it might impact his ego. OTOH, giving a guy who works hard a break to do something simple can be OK, depending on the circumstances.

    That contract document printing story seems like a no-brainer. In any civilization context, outsource.

  17. I used to get the office bird to get the local photocopy shop to make me up a wire bound A5 contract, with a transparent plastic front and back sheet and protruding index tabs in between main sections for larger contracts that I was either devoted to or frequently working on. Nifty and durable, plus you tend to carry it around with you and refer to it more often than an A4 copy. Clients and subcontractors also note that you know your contract well, when you rip it out during discussions and refer directly to the relevant supporting clause. Cost nothing to do and I am okay with the office bird picking it up.

    I hate that Hays salary guide, made me feel three times overpaid it did.

    @theProle

    Good to hear that you are still fighting the good fight. You also reduced the health and safety risk as well as the quality and commercial risk by introducing your workforce to the wheel.

  18. Michael: “insulting” engineers? Reminds me of this firm I used to work for…
    “get the office bird to…photocopy”. So, the perils of insourcing: My first job out of university (1981) was at a then-fabled Silicon Valley firm. Boss asks departmental “bird” to photocopy a hundred or so page reference document for me. Presto, before lunch I was handed a nice binder, containing…the odd numbered pages. She had failed to notice that the original was printed two-sided.
    Sigh…
    This lass was so weird that, one day I rounded the corner going to her desk, noticed she was not there, noticed that her radio was playing the theme music from “The Twilight Zone”, and immediately assumed she had vanished into the 5th dimension. Seemed plausible. Everyone in the department agreed. However, she later re-materialized.
    At least she was sorta cute.

  19. One company I worked for (no names, no pack drill etc.) moved offices and so the telephone number changed.

    The control freak boss decided that the most important thing that everyone had to do was cross out the old telephone number on our business cards and write the new one underneath. It had to be done NOW because if we tried to correct the number just before we handed it over, we might forget …

    I can’t remember how many business cards I hand corrected but it was at least one and a half packets. My time at the time was being charged out at 45 quid an hour.

    But we saved the cost of buying new business cards. Scott Adams would have been stumped to come up with a Dilbert cartoon like that.

  20. This decision needs to be made in consideration what you would pay that guy overtime hours plus benefits to do relative to the delivery boy

    I once worked for an engineering firm where the GM sent out increasingly strident emails to the office about not leaving dirty coffee mugs in the sink, remember to load the dishwasher, your mother doesn’t work here, etc. I pointed out once that every other engineering office pays some kid from down the local assisting living facility to come in for an hour a day at $10 an hour to pick up the dirty mugs, plates, etc. and run the dishwasher, and that at an office consulting rate of $240/hour surely it was more cost-effective to do that instead of paying engineers to wash dishes.

    the MD appointed his daughter as Chief Schmoozer

    I know of a software company (no names) where the owner appointed his daughter CTO fresh out of graduation. So far she’s spent over $2M outsourcing development of the flagship product to $300/hour consultants. The product’s a bust, the company is in dire financial straits as a result, and the owner’s response to this has been to fire everyone who points out that the product is a mess and none of the customers want it. The company has been in business for forty years. She’s going to drive it under in two.

  21. The trouble is, the Hays system (and probably others) of job evaluation uses number of reports of a measure of seniority, and therefore pay.

    In my limited experience of it the Hays system is woeful. During a reorganisation in my previous team all new roles were given Hays scores supposedly based on ‘market value’ for the skills. A prime example; the job spec for a ‘Data Analyst’, someone with general analysis skills, was rated more highly than the job spec for ‘Data Scientist’, someone with highly advanced data analysis and coding skills. There were other similar examples where roles with significant technical skills were ranked below more general ones. When it was pointed out how hilariously divorced from reality these scores were, and that you wouldn’t be able to recruit from the open market using such botched specs, the reply came ‘but that’s what HR says we have to use’. Ultimately, it didn’t really matter; other divisions in the organisation, who had budget, simply cherry picked a lot of the more highly skilled staff leaving behind the ones with the ‘higher’ Hays scores.

    But going back to the original post, another reason for outsourcing is to drive down cost by knowingly pitching it to an outsourcer who will underprice the job and attempt to cut corners to make it pay. The organisation pitching the contract being unable to cut those corners themselves due to other constraints e.g. labour agreements, reputational issues etc…

  22. And there is yet another one, which I am most commonly on the end of:

    “We kinda know how to bodge this but we could do with some real experts. So we will outsource it to you, but you will follow our suffocating, counterproductive, unfit-for-purpose, one-size-fits-all SOPs. After completing the mandatory 80 hours of online training, 90% of which is identical to every other company you work for. Oh, you want paying for that time? Hmmm, well… cheapobodge company doesn’t want paying.
    Oh, and you will be responsible for getting the job done while having zero authority over our dysfunctional teams.”

  23. How does the “Commercial Secrecy” aspect apply to this? It strikes me that outsourcing the printing of a contract document could run the risk of it falling into the wrong (competitors) hands. While it makes perfect sense from a cost point of view, I can understand the need to keep such work “in house”. Wouldn’t it be more sensible to replace numerous small departmental printers with one larger one? But then, I suppose, people would waste valuable time walking to & from the print room….

    Oh, and by the way, as you are moving back to the UK you should consider resetting the blog clock – it’s currently showing 1 hour ahead of BST.

  24. It didn’t seem to occur to the dolt in charge that having an engineer drive documents about isn’t the best use of his time, for which he was paying heavily.

    Doesn’t surprise me at all. You must have seen it before Tim, employees are effectively charged to overhead (even if they are technically billing to projects, they’re getting paid the same either way so the outlay is a flat cost). But raising a purchase order for a few hundred bucks? Wow, that requires signatures and stuff! And that actually counts against my project, whereas wasting an engineer’s time for a day doesn’t. Cost accounting incentives matter. I’ve lost track of the number of times I’ve wasted entire days because apparently it was easier to pay for labour than materials.

    Honestly, I don’t blame him for the ‘detail an engineer’ option. I’ve seen worse. One where I completely agreed, we needed a part in Melbourne that had to come from Europe. This was late 1990s, air freight was going to be a week or so. Our supplier put his son on a plane, I don’t think he ever left the airport, just hand carried the part back to us within 48 hours. It got done, and probably saved us ~$500k in LDs.

  25. MJW: “In my limited experience of it the Hays system is woeful.”

    That raises an interesting question — why don’t commercial companies bid their internal jobs the same way they bid their outside purchases? Especially at the senior and executive levels.

    At the moment, the pay rate for many jobs might as well be decided by the full Central Soviet Socialist Committee. There is no market input. Instead, why not treat senior jobs as if they were regular purchases? Pre-qualify candidates for Project Manager, CEO, CTO, etc — and then give the job to the lowest qualified bidder. There must be a lot of good people around who would do for $9 Million /year what many a CEO is getting $10 Million/year for doing.

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