The book I have chosen to read for the second assignment is called ”Turning lead into gold”. The book was written by Peter Bendor-Samuel and was relased in 2000. Peter Bendor-Samuel is the CEO of Outsourcing Center. The subtitle of the book “the demystification of outsourcing” is telling us the main topic of the book that is outsourcing.

 

Turning lead into gold was the dream of the medieval alchemists. Parallels between outsourcing and the medieval alchemists search for the perfect element are made several times in the book and it is a consistent theme throughout. The aim of the author is not that the reader should see the book as a manual to successful outsourcing, it is much more than that, it is a survival guide for companies entering the outsourcing business. The book explains what outsourcing really is, how it works, when and how to use it, how to apply effective outsourcing principles to a business and how to make profit by outsourcing. The theories are presented with cases and examples from real business situations. This book really tries to teach the reader the importance of outsourcing and that a company will be at a great disadvantage if outsourcing is not applied. Bendor-Samuel writes in the book “You may choose to ignore it, but you do so at your own peril, because your competitors are not ignoring it.” According to this book outsourcing is defined as follows: “Outsourcing takes place when an organization transfers the ownership of a business process to a supplier.” The processes that should be outsourced are the ones considered as non-core processes. It does not mean that the process is unimportant for the business but that it is not the single most important process. For example, the facility maintenance at a hospital is an important process for a hospital but not the most important. This process could be outsourced so the staff are able to focus primarily on the patients. The most frequent reason why a company is outsourcing a process is to reduce operating costs. Other reasons for outsourcing could be to improve company focus, improve quality or reduce risk. I see a lot of similarities between this book and the lecture held by the Bain consultant Philip Sköld. Both Philip Sköld and the book explain the importance of defining the core business of a company.

 

There are a number of things in the book I think are strange, do not agree with and have some thoughts around. The fact that he does not bring up and explain which risks are involved with outsourcing for example. Maybe he does not see any risks with outsourcing if you follow the principles in this book. He might be right but I do not completely agree to this. I believe there is a possibility that a company can loose its credibility by outsourcing too many processes. Even if it seems like a process is a non-core process, in a costumer perspective it may be experienced as core process. A brand to a company is loaded with a lot of assumptions of the company and if too many processes are outsourced these assumptions may change. This will result in costumers seeing the company in another way, and not always in a positive way. While the board may do everything correctly and follow the right theories the result of outsourcing might be positive in terms of lowering costs, but the reaction of the costumers can be different and can damage the company in the long run. I often think that economic literature neglects the impact of psychology among the costumers. This book is better than the classic education material used at universities in terms of theories because this book is based on the experience of the author and involves a lot of real examples. 

 

I get the feeling that Bendor-Samuel thinks outsourcing is the only way to go in creating gold. I think a company can increase profit by expanding their core instead of narrowing it down. I believe many big companies have lower margins in their core business than in some of their non-core businesses. An industrial company in a competitive market for example, I do not think they have good margins on their core process because the technique is very complex and it might be hard and very expensive to improve the core business. If the competition is very hard in a market a company may have to lower the prices on the core product just to make sure they are one of the players in the market. Finance is certainly not the core of an industrial company but I know that the finance department in Scania is one of the departments with the highest profit. I think a company can turn a non-core process into gold; not only the core process. If a company holds on to their non-core processes, it can result in synergy effects in the long run for the company.