Clever Geek Handbook
25 February 2026

The Customer Rules

Recommendation

C. Britt Beemer and Robert L. Shook explain in this book that companies which deliver great service to their consumers exhibit common qualities. For example, firms that tackle customer service as a collective imperative tend to outperform their competitors who consider it just a departmental activity. Emphasizing client support in training programs, not just in written policies, is another way to develop a solid base of returning customers. Each chapter of this guide is devoted to one of the 14 traits of great service providers. The authors drew from $300,000 of consumer research conducted exclusively for this project and enriched their findings by including many case studies of U.S. enterprises. getAbstract recommends this manual to readers who want to adopt the mutual practices of top client-service firms in order to build their own clienteles.

Take-Aways

  • Businesses readily acknowledge the importance of serving customers well, but few actually do so.
  • When corporate leaders stress customer service, staff performance levels improve.
  • Some 67% of people agree they would pay more for products if they received better help.
  • One-third of Americans report that they stopped shopping in certain stores because checkout lines were too long.
  • A strong brand name can create a special image for a product, even a commodity.
  • High customer retention rates depend on great service before and after the initial sale.
  • A store’s ambiance and its advertising can shape positive consumer perceptions, thus attracting clients.
  • Holding onto repeat business is more profitable than acquiring first-time customers.
  • When a restaurant staff member greeted diners by name, 85% of those patrons actually enjoyed their meals more and were more motivated to return.
  • When targeting your marketing resources, focus on affluent customers.

Summary

How to Provide Unbeatable Service

Delivering excellent customer service improves profitability, builds consumer loyalty and reduces buyer turnover. Many businesses readily acknowledge the importance of their clients, but few actually offer them great service. Firms trying to reach out to their customers often collect bad information and misinterpret it. Avoid these pitfalls by adopting the following 14 best practices that top companies employ to deliver exceptional service:

  1. “Everyone’s job” – Creating a department devoted to customer service may send the wrong message to your employees. Serving clients should be the top priority of all staff members, even those with no regular contact with customers. Some employees avoid customer contact because it seems to be beyond their regular duties. That’s not how the Four Seasons hotel chain operates, though. Its leaders teach employees to make guest service their main priority. If a guest asks a maintenance worker at a Four Seasons hotel for directions to the coffee shop, the worker will walk the guest to the location. Simply writing a company policy that makes customer service every staffer’s task is insufficient. Emphasize such a policy through employee training; don’t merely put it on paper. Adding service standards to your mission statement doesn’t help unless you tell your employees about them. One study found that hiring officers tend to mention their companies’ mission statements in fewer than 21% of interviews and just 47.4% of U.S. workers have viewed their employers’ mission statements.
  2. “Sell your employees first” – Delivering exceptional customer service starts with keeping your best workers satisfied. Good morale reduces employee turnover and hiring costs. Bad morale is rarely a secret. Many shoppers can detect if a store’s employees are upset. Staff members telegraph feelings of enthusiasm, apathy and anger more readily than some employers realize. Before retail chain Kmart filed for bankruptcy in 2001, most customers said they sensed that its cashiers and other employees were unhappy in their jobs, citing body language, not explicit statements of dissatisfaction. Generating and sustaining positive employee attitudes is easier in a desirable workplace. Google goes to extremes to keep its people happy, offering them free food at 11 restaurants at the company’s headquarters, and providing services that range from car washes and oil changes to laundry service, massages and foreign language instruction. Employee-owned firms can gain a competitive edge by offering attractive equity investment opportunities to new hires. Morale is usually high at such businesses because the employee-owners often fill management vacancies by promoting from current staff.
  3. “Company culture” – Firms gain by creating positive cultures that employees and customers can embrace. Mary Kay Ash started her cosmetics business in 1963 with a personal mission of helping others reach their individual potential. She believed that “the more you give, the more you receive,” and ultimately built a business empire. Mary Kay is now one of America’s most recognizable brands. Similarly, the legacy of the Four Seasons hotel chain began when Isadore Sharp opened a motel in downtown Toronto in 1960 with a powerful emphasis on customer service that rivals would struggle to match. Among other tactics, Sharp paid front-desk clerks twice the going average to attract the best people and provide unsurpassed service to guests.
  4. “Being big, thinking small” – People like to buy from small companies. The reason? Surveys show that 90.2% of customers reported “feeling overwhelmed” at big stores and that 78.6% would prefer to go to small stores if they offered the same prices as large stores. “Thinking small” is no small task for major corporations. Businesses rooted in tiny towns often find it easier to develop an especially personal touch in customer relations. Sporting goods seller Cabela’s, Ashley Furniture Industries and investment firm Edward Jones are examples of enterprises that are based outside major cities and that cherish their strong small-town heritage. They have built a loyal following one customer at a time and, along the way, they have made important contributions to the communities where they do business.
  5. “Total customer experience – before, during and after the sale” – Customers want you to “wow” them on every level. They gravitate to stores that look dazzling, that employ knowledgeable salespeople and that provide exceptional post-sale service. Many initially decide where to shop based on a store’s ambiance and appearance. Advertising also can convey quality and distinction. But be aware that the advertising medium you use may be just as important as the message. For example, many consumers judge paper quality when they assess the value of ad inserts in newspapers. Store owners who appear in ads may have more credibility than actors. Truth in advertising, after all, is nonnegotiable. Managers who fail to keep advertised sales items in stock will hurt repeat business. Store owners who cut staff may suffer the same consequence. Customers like to browse, but they also want assistance finding items. When they can’t find sales help, browsers don’t become buyers.
  6. “Personal touch” – Nothing is a substitute for personal service, not even the Internet. Consumers believe the Web actually inhibits service. They want to talk with a human being and get assistance when they shop. Further, 67.2% of those surveyed said they would pay 10% to 20% more for the same merchandise if they could get good service. This means companies could realize a higher return on investment if they hired skilled staff to interact with customers. Small business owners tend to have a competitive edge in offering individualized service. They can express appreciation to clients more directly than their bigger competitors and they can forge strong bonds with regular customers whom they greet by name. A survey found that when a restaurant staff member greeted diners by name, 85% of those patrons enjoyed the “dining experience” more. Mary Kay, RE/MAX, Harrah’s and the Four Seasons go to great lengths to greet guests by name. Yet, surveys show that most sales and service employees rarely address customers by name, even if the patron’s name is readily visible on a credit card or a debit card.
  7. “It’s about time” – Time has become more valuable to consumers, and they now spend fewer hours shopping. The average American works 46 to 47 hours per week and spends about one hour a day commuting. So it’s understandable that one-third of Americans said they have stopped shopping in stores that have long checkout lines. Apple’s leaders corrected this problem by equipping store employees with hand-held scanners, enabling them to process sales anywhere in the store, not just at checkout desks. A Lexus car dealership owner in Newport Beach, California, built a service facility large enough for 100 vehicles to ensure that routine maintenance and repairs would take less than an hour.
  8. “Why selling a service differs from selling a product” – Misguided companies sometimes fail by focusing on selling products, not on serving customers. Savvy retailers understand that a store’s atmosphere is just as important as its product assortment. For example, creating a distinctively pleasant customer experience at its retail stores, not just selling good coffee, has been critical to the growth of Starbuck’s. Hotel and casino operator Harrah’s carved a special niche in the Las Vegas market by issuing debit cards to guests to enable them to track their spending and to reward them based on their gambling and shopping expenditures. Harrah’s ultimately built a database capable of calculating the exact value of each customer derived from his or her past spending. As a result, Harrah’s excels at guest relations and has improved service to its most profitable guests.
  9. “When price rules” – Companies that compete on price alone struggle to develop customer loyalty. Discounting can damage both a firm’s long-term reputation and its short-term financial performance. For example, many businesses in the airline and supermarket industries offer discount prices that can erode or eliminate their profit margins. Some successful companies provide great service while resisting price cuts. Compared with other underwriters of workers’ compensation insurance, Chubb spends more time analyzing risk and it charges more for coverage. But Chubb also resolves claims faster than its rivals, a quality that has helped it become a leader in its industry. Chubb’s customers pay extra for the peace of mind provided by high-quality service.
  10. “Multiple tiers of customers” – Most large service companies have a variety of customers. Johnson & Johnson, for instance, sells pharmaceuticals to doctors and hospitals that, in turn, dispense them to patients. Although all customers deserve respectful treatment, smart business leaders choose which customers to encourage with incentives. They nurture the most profitable customer relationships. That’s why first-class airline passengers get more perks than passengers in the coach section. The gambling industry routinely distinguishes its most profitable guests from the rest. When Microsoft founder Bill Gates offered $20,000 to $25,000 for a five-night stay in one of the Rio’s luxurious Palazzo suites in Las Vegas, the hotel management refused. The reason? Gates is a pocket-change, draw poker player. The suites he wanted were held for high rollers with credit lines of more than $2 million.
  11. “Satisfy Main Street first, then Wall Street” – Companies straining to meet short-term financial goals often fail to achieve their long-term objective of delivering exceptional customer service. When service-conscious businesses take a long view, they focus on clients, their key asset. Blindly pursuing immediate financial results has long-term consequences. Firms that cut corners by slashing payroll risk diluting service and alienating customers. Operating privately is one sure way to sidestep Wall Street. Compared with public companies, privately held organizations spend less on building relationships with shareholders, stock analysts and journalists. Though Wall Street analysts measure corporate progress in three-month increments, public companies often need two or more quarters to show tangible progress from major initiatives like technology upgrades and entries into new markets. A leading U.S.-based seller of private passenger aircraft service, NetJets, lost “$40 million back to back during its first two years” of operation in Europe before turning profitable and ultimately dominating the European market. One reason this worked was the patience of multibillionaire Warren Buffett, chairman of investment holding company Berkshire Hathaway, a major shareholder in NetJets. To his credit, Buffett never pressured NetJets’ management to stem its early losses in Europe.
  12. “The power of strong branding” – Consumers are loyal to brands that are synonymous with the positive attributes they seek. With strong branding, even ordinary goods can gain an extraordinary following. Ketchup is a commodity, but Heinz has taken an overwhelming share of the U.S. ketchup market, thanks largely to decades of effective brand marketing. Some brand strategies center on business missions. For example, the Four Seasons brand is a “promise” that each guest will have the best hotel experience possible. Brand strategies that encourage word-of-mouth advertising may be the most powerful.
  13. “Value of a customer” – Holding onto repeat business is more profitable than acquiring first-time customers. Retaining clients is largely a function of delivering great service. Companies spend on advertising, promotions and other marketing tools to attract new buyers. One used-car dealer realized he was making too few sales to new customers to justify his practice of spending $400 in marketing expenses for each fresh prospect who walked into the showroom, so he refocused on returning customers. Building recurring business drives down advertising and other customer-acquisition costs. Repeat business also enhances a company’s market value. Firms with low customer turnover will command a higher price than those with high customer turnover.
  14. “Change is constant” – The rapid pace of change means successful marketing strategies do not work for very long. Constantly adjust your assumptions about consumer behavior as new trends unfold. For example, people are increasingly reluctant to visit multiple stores on a shopping trip. In 1980, Americans shopped at an average of 3.5 stores before making a purchase, but by 2008 the average had dropped to 1.3 stores. As a result, retailers must strive to ensure that their stores are the first ones that consumers choose to visit by providing better shopping experiences.

About the Authors

Trend forecaster C. Britt Beemer is founder and CEO of America’s Research Group, a national firm that conducted the studies used exclusively for this book. Robert L. Shook is the author of many business books, five of which have appeared on The New York Times bestseller list. His recent books include Longaberger and The Pep Talk.

Read summary...
The Customer Rules

Book The Customer Rules

The 14 Indespensible, Irrefutable, and Indisputable Qualities of the Greatest Companies in the World

McGraw-Hill,
 


25 February 2026

Rock, Paper, Scissors

Recommendation

Len Fisher, an award-winning author of popular science books, has written an entertaining, enlightening and practical guide to the abstruse discipline of game theory. Fisher shows how game theory explains phenomena as mundane as why spoons go missing from a coffee break room, as ingenious as rabbinical problem solving in the Talmud and as fateful as global warming. BooksInShort finds that his lively writing invites a wide audience. Fisher engages lay readers by elucidating an intensively mathematical subject without heavy reliance on equations or jargon. His treatment of the subject makes game theory appear only slightly more complicated than child’s play. In fact, he often uses children’s games to illustrate the role of game theory in daily life.

Take-Aways

  • Learning game theory – particularly how to identify traps – has practical, everyday benefits.
  • People often choose to accept no reward instead of taking one they see as unfairly small.
  • A “Nash Equilibrium” is a two-party situation that neither party can independently change without cost.
  • The reciprocal game “Tit for Tat” can lead to cycles of retaliation.
  • People are more likely to cooperate with those they will encounter again in the future.
  • Cooperation is easier in small groups than in large ones.
  • Two parties struggling to form an alliance may succeed if a noncooperative third party interjects.
  • Establish your credibility by agreeing to pay a price if you break an agreement.
  • If you want people to trust you, show that you trust them first.
  • Stick with a winning strategy as long as it wins, and if it fails, switch immediately to a new one.

Summary

Games People Play

Game theory explains many of life’s mysteries and provides a way to understand everything from domestic squabbles to military confrontations. Game theory is based on more than competition. In fact, cooperation may be the ideal response in some games. Individuals, groups and entire nations can sidestep some traps in game theory by getting along instead of allowing destructive competition to intensify.

“Game theory is all around us. Despite its name, it is not just about games – it is about the strategies that we use every day in our interactions with other people.”

One of the most famous destructive patterns in game theory is known as “the Tragedy of the Commons.” Game theorist Garrett Hardin publicized this pattern in 1968, using the example of grazing land that several livestock herders share. Each herder can make a little extra profit by allowing one more animal to graze. But if all of the herders do so, overgrazing will ensue and the land will turn barren. The Tragedy of the Commons also explains why spoons may disappear from a company’s coffee break room. Each employee who takes a spoon from the break room gains some convenience at no cost. But, of course, when every person takes a spoon, none remain. This theory also sheds light on such serious issues as international conflicts over global warming. Each country may derive some economic benefit from burning fossil fuels without restraint. However, if every country does that, the global consequences will be disastrous for all.

“Rock, Paper, Scissors”

People around the world play versions of the game Rock, Paper, Scissors, including “Snake-Frog-Slug” in Japan and “Elephant-Human Being-Earwig” in Indonesia. Whatever it is named, this zero-sum game has an intransitive quality. Rock beats scissors, scissors beats paper and paper beats rock, but rock does not beat paper, paper does not beat scissors and scissors does not beat rock. The Rock, Paper, Scissors game provides useful insights into many problems. For example, what is the best survival strategy for the least-skilled shooter in a “truel,” or a three-way pistol duel? Suppose that one of the three is an excellent shot, one is mediocre and one is bad. The best strategy for the bad shooter is to step back and let the other two shoot at each other. The ABC television network appeared to adopt that strategy by airing noncomedy programming in late-night slots rather than competing directly with popular comics on CBS and NBC.

“Standing back to let the strong ones fight it out before entering the fray [works] in many areas of life.”

Nature itself seems to play Rock, Paper, Scissors. For example, one species of California lizards has three different categories of males identifiable by throat color. The sneaky yellow throats defeat the aggressive orange throats, and the defensive blue throats have an advantage over the yellow throats. But blue doesn’t beat orange.

“The Seven Deadly Dilemmas”

Seven dilemmas in game theory are especially perilous for the players, and can have national or international consequences:

  1. “The Prisoner’s Dilemma” is at work when cooperation would benefit two parties but each acts independently, undermining any momentum toward an alliance.
  2. The Tragedy of the Commons is similar to the Prisoner’s Dilemma except that it involves more than two parties.
  3. The “Free Rider” dilemma can lead to the loss of shared resources. Individuals may be able to enjoy a community resource without paying for it. But if no one voluntarily pays and everyone chooses instead to be a free rider, they all exhaust the resource.
  4. In the “Volunteer’s Dilemma,” an entire group will suffer a loss unless one member voluntarily makes an effort or a sacrifice, yet no one wants to be the first to act.
  5. In a dilemma called “Stag Hunt,” a group can win a massive reward if all the members cooperate with each other. However, members may elect to chase smaller but surer individual rewards by refusing to cooperate.
  6. “Chicken” or “brinkmanship” is a game that pulls two parties to the brink of conflict. One party must retreat first or both parties will face a catastrophic loss. In some cases, neither party is willing to back down. In other cases, losses threatened by one party may be enough to discourage the other party from engaging in conflict. For example, you could make a threat that is so dangerous that even if there is only a small chance of it materializing, the overall probability equation makes it rational for the other party to back down, and not you.
  7. The “Battle of the Sexes” is a dilemma for men and women who desire togetherness but prefer different activities.

The Prisoner’s Dilemma

A crime story commonly illustrates the Prisoner’s Dilemma, a central focus of game theory. Consider the case of two captured thieves who committed a burglary carrying concealed weapons but left behind little evidence. Police encourage each thief to plead guilty to burglary and to testify that the other one was involved in the crime. If both thieves plead guilty to burglary and each testifies against the other, both will get four-year sentences. If both thieves plead innocent and refuse to testify against each other, both will get two years in prison for a lesser crime. The best strategy for both thieves would be admitting nothing and accusing no one. But because neither thief knows what the other will say to the police, each concludes that pleading guilty to burglary and implicating the other is the most prudent strategy. The Prisoner’s Dilemma is one of the most thoroughly studied problems in game theory. The Cold War arms race was a real example of this dilemma. Countries would have been better off if they spent less money on arms. However, no country could afford to become militarily weaker than its adversaries.

“The Prisoner’s Dilemma presents us with a logical conundrum that lies at the heart of many of the world’s most serious problems.”

American mathematician John Nash, subject of the movie A Beautiful Mind, won the Nobel Prize for discovering the trap in the Prisoner’s Dilemma. To understand this trap, imagine two men walking toward each other on a sidewalk wide enough for one. If one man or the other steps aside, both can pass. However, neither man can change his mind without causing an impasse. Communication and cooperation can help people avoid the “Nash equilibrium” trap.

“Global warming is one example: Why not gain an economic advantage by letting other countries bear the cost of reducing carbon emissions?”

John Nash’s work also led to the “Nash bargaining solution,” a mathematical method of identifying fair shares. If you multiply the possible shares by each other, the biggest value represents the most equitable option. You can use this tactic to compare different ways of splitting a sum between two individuals. For example, the fairest way to split $100 between two people is giving each of them half the money, because 50 multiplied by 50 equals 2,500. Giving $51 to one person and $49 to the other is less fair because 51 multiplied by 49 equals 2,499.

“We experience the ghostly hand of the Tragedy of the Commons every time we use our computers to surf the Web.”

Psychological experiments show that two parties often prefer a 50-50 split even when one party is more powerful. In experiments, researchers gave cash to one person with instructions to share it with a second party in a mutually agreeable way or forfeit the whole sum. Rationally, the first party should offer only a tiny share, and the second party should accept a tiny share because it would be better than nothing at all. But in practice, people tend to reject offers below 30% and accept nothing to protest the unfairness of the offer. Money, it turns out, isn’t everything. Brain research suggests that people who reject a financial reward may get an emotional boost from enforcing the norms of fairness.

Minimizing Maximum Losses

Antipathy to unfairness appears to be an evolutionary endowment that human beings share with other primates. Monkeys actually will throw food back at a zookeeper if they perceive that other monkeys unfairly received more food. Children sometimes do the same thing. The author once threw a dessert at his mother because he felt she unfairly favored his brother with a bigger portion. So, how can you divide desserts and other goodies without causing envy or resentment? One solution is familiar to many parents: Let one child cut the cake and the other choose the piece he or she wants. In this case, the cutter has an incentive to make sure both pieces are equal. This is a variant of a strategy that game theorists call “Minimax,” short for “minimizing your maximum possible loss.” The solution has wide applicability. John von Neumann, a game theory pioneer, applied it to poker. Other researchers have found that professional athletes intuitively strive to minimize their maximum possible losses.

“Unfortunately, in the adult world, cycles of retaliation and counter-retaliation can lead to more serious consequences, including messy divorces, ongoing sectarian violence, terrorism and war.”

The Babylonian Talmud, a central text of Judaism, uses an interesting application of the Minimax concept. Rabbis must decide how to divide an estate among a man’s three widows. Separate prenuptial agreements presuming an estate worth 600 dinars had guaranteed 100 dinars to the first widow, 200 dinars to the second widow and 300 dinars to the third. But what if the estate was worth less than 600 dinars? The rabbis came up with three different formulas, according to the value of the estate. They ruled that if the estate had a value of 300 dinars, the first widow would get 50 dinars, the second widow 100 dinars and the third widow 150 dinars, the exact proportions in their agreements. If the estate was worth 100 dinars, the three widows would each get an equal share. If the estate was worth 200 dinars, the first widow would receive 50 dinars and the other two widows would get 75 dinars each. Nobel Prize-winning game theorist Robert Aumann and economist Michael Maschler applied game theory to explain the 50-75-75 solution. Their research shows that the Talmudic solution was the fairest possible outcome because it featured an “equal division of the contested sum.”

Building Trust

People often agree to cooperate and then violate the agreement. Two ways to limit cheating are reducing the incentive for reneging on a deal and employing a third party to enforce adherence to the deal’s terms. Other solutions include making breach of contract too costly or designing the contract to allow for partial payments, instead of a large upfront payment. Retaliating against a cheater may invite reciprocal action. In the two-way game “Tit for Tat,” each party does whatever the other does. This can be mutually rewarding if a series of cooperative actions ensue. But Tit for Tat also can lock players into endless retaliatory cycles.

“The sense of fairness seems to be deeply ingrained in our psyche and may come from...our evolutionary history.”

The survival of coalitions depends on trust. But trust may be unrewarding and it is risky. The risks include possible betrayal and loss, as in the case of naively trusting people who fall for Internet scams. Properly placed trust, however, can produce mutually satisfying outcomes. You can use two different tactics to signal that your commitments are credible. The first way is to raise your personal cost of betraying the other person by:

  • Putting your reputation on the line.
  • Going step-by-step, as in project contracts that pay as upon completion of each phase.
  • Teaming up so that peer pressure comes into play. Roman legionnaires faced a death penalty if they did not attack with gusto; anyone who neglected to kill lazy laggards was subject to the same penalty.
  • Developing a contract and including a penalty clause to “make [it] stick.”
“Credible commitment works, even in the absence of underlying trust between parties.”

The second way is to close off avenues of escape from keeping your commitment by:

  • Submitting to the authority of a powerful third party whose word is law.
  • Making escape impossible. Spanish conquistador Hernán Cortés destroyed the ships that brought him and his soldiers to Mexico, leaving no alternative to war.
  • “[Putting] your decision in the hands of fate” by limiting your ability to affect its results, and letting the outcome simply unfold.
“The trouble with game theory is that it can explain anything. If a bank president was standing in the street and lighting his pants on fire, some game theorist would explain it as rational.” (strategic analyst Richard Rumelt)

Game theory offers other types of practical advice. Engage in reciprocal games with players you plan to work with over a long period of time. If possible, structure their costs and benefits to eliminate the seven deadly dilemmas. For example, divide any burdens or gains fairly among players to eliminate envy. Use rewards to keep players in a coalition. Show trust in order to gain it. If you are the first to display trust, you will give your counterparty an incentive to trust you. If coalition building bogs down, consider switching to a smaller playing field. Cooperation and trust are easier to achieve in small groups of players than in large ones.

About the Author

Len Fisher, Ph.D., is the author of Weighing the Soul and How to Dunk a Doughnut, which was named Best Popular Science Book of the year by the American Institute of Physics. He is the recipient of an Ig Nobel Prize for calculating the optimal way to dunk a doughnut.

Read summary...
Rock, Paper, Scissors

Book Rock, Paper, Scissors

Game Theory in Everyday Life

Basic Books,
 


25 February 2026

Inside Outsourcing

Recommendation

Books that help a business consultant promote consulting can be suspect. After all, the consultants’ first piece of advice is that you need to hire them. That caveat aside, you will find this a well-conceived view of the practical mechanics of setting up a good outsourcing program. The text can be redundant, telling you many times over that you need to agree on measures to define a project’s success. However, even though authors James Essinger and Charles L. Gay don’t dodge all the pitfalls, they do hand you the common-sense fundamentals you need to safely navigate the trendy world of outsourcing. Overall, BooksInShort recommends this as a useful volume that will help any executive who is thinking of setting up an outsourcing program or wondering how to do it better next time.

Take-Aways

  • Strategic outsourcing is a useful approach in a profit-driven business environment.
  • Outsourcing should do more than offload corporate responsibility. It should generate real, measurable benefits to the corporation.
  • Outsourcing requires management to focus on outputs (not inputs) and results (not methods).
  • To set up an outsourcing program, first set organizational goals and measures.
  • Communicate with your employees, who may see outsourcing as a threat.
  • Even if it is bureaucratic, a Service Level Agreement (SLA) - defining the service, its outputs and how you will measure it - will improve your success rate.
  • The advantages of a partnership with the right supplier often outweigh the bottom-line price.
  • Develop a contract that specifies performance levels and consequences.
  • Monitor the success of the initiative.

Summary

Do What You Do Best

If you’ve ever flown British Airways, you might be interested to learn that the crew, cabin staff and even the aircraft itself are all outsourced. The company focuses on its one key area of expertise: customer relations. British Airways is not the only corporation that takes maximum advantage of outsourcing opportunities. The Harvard Business Review identified outsourcing as one of the most important management practices of the last 75 years. More than 90% of U.S. companies outsource at least one function - unfortunately, many of them don’t know what they’re doing.

“’If it’s a hassle, outsource it’ is hardly a particularly dignified or coherent management theory, but it is one that is practiced every day in the U.S. and many other countries.”

The main forms of outsourcing include:

  • Contracting activities to outside organizations - Companies often contract out low-level ancillary services that do not involve strategic thought, such as cleaning and maintenance.
  • Service outsourcing - When you outsource your company’s service elements, you must carefully select the party who will represent you. Your goal is to tap into the service provider’s expertise, so that your company can concentrate its resources on doing what it does best.
  • Insourcing - When you have a small business unit that can take on work beyond its own needs, you may choose to insource your work from one part of your organization to another. This can help make a viable business unit out of a function that otherwise would be too small to stand on its own.
  • Co-sourcing - Both the vendor and the host corporation work to insure a sufficient supply of the resources needed to complete the job. The vendor and host company become more interrelated.

Why Outsource?

Historically, organizations have performed non-core activities themselves, either because they could not find reliable vendors, or because pure size was a company goal. Today, the goal of "return on investment" has replaced the goal of "pure size." The top reasons for outsourcing are:

  • To control operating costs.
  • To sharpen company focus.
  • To improve capability.
  • To free resources for other tasks.
  • To obtain resources that are otherwise unavailable.
“Outsourcing is the most potent management tool ever invented for driving efficiency into an organization.”

Increasingly, outsourcing is collaborative, more along the lines of co-sourcing. These relationships become partnerships, benefiting both the outsourcing firm and the host company.

Outsourcing can have a dark side. Deals that focus inordinately on cost reduction, or that the board makes without input from managers, are subject to difficulty. For any outsourcing effort to be successful, you must have a clear understanding of company goals and objectives, how the outsourcing effort fits into the company’s strategic plan and vision, continuing management of the relationship with the vendor and the right vendor for the job.

“Strategic sourcing is not just a matter of tapping into a supplier’s expertise, it is also a matter of insulating oneself from a supplier’s problems.”

Outsourcing also brings less-obvious leveraged benefits, which include:

  • Spurring change by exposing the need for improvements elsewhere in the organization.
  • Supporting other business initiatives, such as IT implementations or process modeling.
  • Initiating cultural change by educating people about creative service-delivery options.
  • Stimulating internal competition.

Outputs and Results

Outsourcing should be strategic and not merely address an ad hoc need. It should systematically enhance your productivity and competitiveness. However, management must accept a new perspective on control. You must stop focusing on inputs (how things get done), and focus instead on finished output (what is to be done and how much). You must leave outsource vendors to their own internal processes and methods. If you are a host company manager, it is the output that ultimately matters to you.

New Approaches

To magnify your outsourcing effort, thoroughly assess your company’s needs. Ask the following questions:

  1. What are the goals of the outsource initiative?
  2. What is the service or function you are considering for outsourcing?
  3. Is the need compelling?
  4. Is this initiative directly relevant to your strategic intentions?
“In our experience it is fear and uncertainty that generate staff turnover, not outsourcing.”

The next step is to develop a business case that presents your proposal. This can vary from a few sentences on one piece of paper to a detailed feasibility study running 100 pages or more. Compare the way you currently manage things to the improvements you expect under the new arrangement. The business case should contain the following key sections:

  • Executive summary.
  • Strategic overview or context.
  • Current status quo.
  • Options available.
  • Benefits of the recommended course.
  • Costs.
  • Analysis of vulnerability of your key assumptions to change or miscalculation.
  • Risks.
  • The plan.
  • Recommendations.
“When a change on the scale of that demanded by an outsourcing initiative is announced it is, unfortunately, human nature to be against it.”

Define the project’s parameters, and define success. Go into your outsourcing program with the following benchmarks:

  • A clear boundary defining the vendor’s and your company’s responsibilities.
  • A method of measuring the success of the program.
  • A definition of the relationship with the supplier.

Operational Plan

Once you make the decision to move forward, your organization must take the following steps:

  • Create an operational plan, a set of instructions to the vendors on what you want done.
  • Establish written objectives.
  • Determine potential suppliers.
  • Issue a Request For Proposal (RFP).
  • Determine a short list of potential vendors.
  • Evaluate supplier responses.
  • Involve your senior managers in the selection process.
  • Identify and train the people who will manage and supervise the contract.
  • Negotiate the contract and sign the Service Level Agreement.
  • Manage the transition to the outsource effort.

Legal Aspects

Break down the agreement-signing phase into two segments: 1) a non-binding memorandum of understanding that defines the scope and goals of the project, and 2) the actual service contract. The contract is an important risk-management tool that foresees different situations that may arise, and prescribes a response based on the relationship between the parties. The contract should be flexible enough to accommodate unforeseen changes in your business environment. It should describe the process you would use to address issues of poor performance. Laws exist that affect the relationship between your company and its outside vendors. Your human resources staff should properly define your legal parameters.

The People Part

Think carefully about outsourcing’s impact on your employees. They may perceive outsourcing as a threat to employment security. Questions to consider include:

  1. Are there other, concurrent initiatives that might overload the staff?
  2. Have you thought through the staff’s likely questions?
  3. Can you provide a hotline for staff members with questions?
  4. Are there ways to communicate as the process evolves, through team meetings, announcements or newsletters?
  5. Are there other stakeholders with whom you should communicate, such as shareholders and customers?
  6. Have you planned for a smooth transition to the outsource effort?

People = Resistance

You will experience some resistance to change. It’s human nature. Staff members resist when they feel they have lost control over their jobs and lives, and you can anticipate this need and prepare to address it. Communication is the key - early, often and open. Your employees may think you are disenfranchising them. You may experience a "culture clash." Involving employees and managers early in the process will reduce stress. (For example, some companies have developed user roadshows for IT changes and use them to familiarize employees with the changes that otherwise would be thrown at them without their prior involvement.)

Checking Up On Results

You must commit yourself to monitoring the success of your outsourcing program. Use the clear objectives and standards in your Service Level Agreement to make sure the program is performing satisfactorily. Give periodic reviews. If the contractor is performing, you should be able to demonstrate measurable gains in efficiency and quality improvement. Look for other, less tangible benefits as well, such as leveraging off a vendor’s specialized expertise and capabilities. Review the results regularly, and communicate them. Tracking results will give management the confidence to consider future outsourcing endeavors.

Conclusion

Planning is the key to running a successful outsourcing operation. If you define the results that you want, establish a consensus about your goals and use outsourcing as a way to improve your business - rather than simply as a way to shift costs and responsibility - then strategic outsourcing can be a valuable tool for building your company’s future.

About the Authors

James Essinger has written more than 25 business books and many popular science articles. His most recent work is Jacquard’s Web. Charles L. Gay is managing director of Shreveport Management Consultancy, which specializes in implementing outsourcing initiatives.

Read summary...
Inside Outsourcing

Book Inside Outsourcing

An Insider's Guide to Managing Strategic Sourcing

Nicholas Brealey Publishing,
 



All Articles
Load More