Peter Drucker on Outsourcing and Information Technology

I stumbled on a 2004 interview of Peter Drucker, one of the giants of management consulting and education.  Drucker was famous for coining the term “knowledge worker”, and he was an early proponent of outsourcing (starting decades ago).  It’s worth reading the interview in its entirety, but here are a couple of excerpts that resonated with me, now, in 2014.  The first one is on the true value of outsourcing.  Hint: it’s not cost savings.

Q: How can the productivity of knowledge workers be measured and improved?

A: Nobody has really looked at productivity in white-collar work in a scientific way. But whenever we do look at it, it is grotesquely unproductive. As you know, most of my work these days is with universities and hospitals and churches, which are three of the biggest knowledge-worker employers, and their productivity is dismal. In part this is because knowledge work by definition is highly specialized, and that means that the utilization of the knowledge worker tends to be very low.

The inefficiency of knowledge workers is partly the legacy of the 19th-century belief that a modern company tries to do everything for itself. Now, thank God, we’ve discovered outsourcing, but I would also say we don’t yet really know how to do outsourcing well. Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management. When you outsource to a total-quality-control specialist, he is busy 48 weeks a year working for you and a number of other clients on something he sees as challenging. Whereas a total-quality-control person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects. That’s why when you outsource you may actually increase costs, but you also get better effectiveness.

Here’s another comment on information technology:

Information technology forces you to organize your processes more logically. The computer can handle only things to which the answer is yes or no. It cannot handle maybe. It’s not the computerization that’s important, then; it’s the discipline you have to bring to your processes. You have to do your thinking before you computerize it or else the computer simply goes on strike.

This enforced discipline has some disadvantages, because it often forces people to oversimplify. Also, the process of arriving at business decisions isn’t always systematic enough to be supported by computers. You have to take the assumptions out of the mind of the decision-maker and put them explicitly into the process, along with a method to check them, and only then can a computer help you manage it. Older executives find it excruciating to have to be that explicit, because they just don’t want to be. Besides, as we all know, many decisions are ultimately made by the hydrostatic pressure in the boss’s bladder.

As I said, read the whole thing.  It’s still very relevant, 10 years later.


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