by Stephanie Overby

Outsourcing Problems? Your Middle Management May Be to Blame

Jan 28, 2010

Researchers at the London School of Economics' Outsourcing Unit say middle managers are critical to outsourcing success, but many--particularly offshore--lack the necessary skills to keep outsourcing engagements on track.

Middle management just isn’t what it used to be.

The old definition of a middle manager—those senior staff in charge of overseeing the details of day-to-day management and reporting to top management—is too narrow, says Leslie Willcocks, Professor of Technology Work and Globalization at the London School of Economics (LSE) and head of its Outsourcing Unit. In today’s complex and global business environment, middle management is the “glue that holds organizations together,” Willcocks says.

At outsourcing companies, middle managers are even more important, responsible as they are for working externally with customers and suppliers and internally with senior management. At offshore outsourcing firms, they require an ever greater mix of skills, including the ability to build virtual teams across organizational boundaries, countries and cultures. Indeed, effective middle managers at IT service providers must be simultaneously coordinators, knowledge repositories, social capitalists, and change agents, say Willcocks and Catherine Griffiths, co-founder and business development manager of the LSE’s Outsourcing Unit.

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In reality, those in middle management positions at many organizations—particularly in offshore IT service providers, but also at client companies—lack some or all of those key skills, says Willcocks. And according to his and Griffiths’ research, that lack of experience can create huge headaches for outsourcing customers. Costs can spiral out of control, service levels sink, and the outsourcer’s ability to meet contractual obligations suffers when middle managers fail to execute as needed. (Willcocks’ and Griffiths’ research on outsourcing and middle management is based on a case database of more than 1,200 global sourcing IT, BPO and offshoring arrangements studied over the last 16 years.)

The more work becomes adaptive—where solutions are unclear and problems are complex—the more important middle management is, say Willcocks and Griffiths, particularly in offshore application development projects or situations where new or innovative solutions are being attempted.

The Root of the Outsourcing Middle Management Problem

Offshore outsourcers’ middle management deficiencies stem from the fact that they have grown faster than their talent base.

“The speed with which many countries are developing their outsourcing and offshoring industries means revenues have come without the corporate structures to sustain sufficiently the speed or scalability of long term growth,” Griffiths says. “Without the necessary middle management to hold the company together and provide the smooth running and corporate knowledge repository, many companies reach a growth plateau.”

High turnover in outsourcing hot spots like India and the Philippines further limits the pool of potential middle managers.

But middle managers at client companies—in the U.S. and elsewhere—are also to blame for outsourcing failures. Client organizations typically underestimate the amount of retained middle management capability that they will need to operate offshore outsourcing arrangements effectively, say Willcocks and Griffiths. Outsourcing customers need good middle managers to define and deliver on business requirements, ensure the business has access to necessary technical capability, understand internal and external IT service markers, and provide oversight, governance and coordination of all service delivery.

In some cases, a single middle manager can make or break a deal. Individual people can in fact get in the way of outsourcing success. Willcocks relays the story of one major oil company CIO who told LSE researchers, “When X was in place as a demand manager nothing got done; when Y took his place it all began to happen.”

Growing Middle Managers

Relationship chemistry between middle managers at both the provider and the customer is a key component of successful offshore outsourcing initiatives. Willcocks and Griffiths identified six underlying attributes of middle managers that contribute to a positive result in outsourcing:

  1. Monitoring and Protecting: Managing risks and compliance comprehensively.
  2. Facilitation and Problem Solving: Making things happen and breaking down barriers.
  3. Organizing by Planning Processes: Maintaining records, audit trails and controls.
  4. Relationship Development: Facilitating trust, respect and interpersonal relationships.
  5. Entrepreneurship: Seeking innovation, better ways of doing things, and leveraging long-term potential.
  6. Scanning: Being well-networked and connected.

No one middle manager can perform all six roles, but an internal or cross-organizational team can and must take on all those responsibilities for a high-performance outsourcing relationship, says Willcocks.

More IT service organizations—and their customers—are recognizing the value of mature middle management and investing in managers’ development, say Willcocks and Griffiths. Many overseas companies are providing training courses and mentoring, from standard certification courses and stints overseas at more developed business units to cozying up to the global competition.

“Some Egyptian companies have also acquired middle management expertise through strong links with Indian companies,” says Griffiths. “Of course, the ultimate way to attract good management is by salary and career progression.”

The irony is that many outsourcing customers eliminate middle management staff as a cost-cutting measure when they enter an outsourcing deal. Willcocks’ and Griffiths’ research demonstrates the danger of cutting middle management too thin.

“In a globalizing services industry, clients and suppliers alike who treat middle managers as dispensable costs will run into serious delivery problems,” says Willcocks. “Though not high profile, middle managers are a major secret of success and a key resource for modern sourcing of business and IT services in whichever country they are based.”