Outsourcing is hazardous.

The Deepwater Horizon oil spill disaster in the Gulf of Mexico has some serious lessons for outsourcing.

On the 20th April 2010 there was a gas leak at the BP deep oil drilling rig, which was followed immediately by a series of explosions, and we all know the subsequent pollution disaster that is still playing out – killing ocean life, and in consequence destroying fishing industries in the Gulf.
And that’s just the quick version. Barrack Obama has had to miss the opening of the FIFA world cup soccer to deal with the crisis.

The Wall Street Journal describes how immediately after the explosions, a crew member noticed that there had been no distress call, and she grabbed the radio and sent out a Mayday call. The Captain of the rig called her and berated her for doing so: “I didn’t give you authority to do that!”

There was a breakdown in the chain of command, complicated by the fact that there were two senior executives on board, ironically honouring a seven year accident-free period on the rig. The captain did not return calls from panicked crew members, and never issued an order to abandon ship. Eventually the same radio operator who had been chastised for issuing a Mayday call, picked up the public address microphone and issued the abandon ship instruction.

By that time many crew members had jumped overboard, and other lifeboats had been cast free with fewer than half the available seats filled.

Eleven people died. Two days later the rig sank.

The rig was outsourced by BP to a company called Transocean. The BP CEO, Tony Hayward, said: “Mistakes were made but not by us... This was not our drilling rig, it was not our equipment, it was not our people, our systems or our processes.”

But the BP share price has dropped by more than 30% since the disaster. As Rupert Younger, of the Saïd Business School in Oxford commented: “You might be able to outsource operations, but you cannot outsource your reputation.”

So here’s the thing, which you have heard a thousand times before: You can outsource an operation or process, but you can’t outsource responsibility. Stefan Stern of the Financial Times observes: “That’s the trouble with outsourcing. You might fall for the illusion that by signing a deal and bringing in expert help from outside, you have somehow removed the need to pay complete attention to a service or function that is now being provided by someone else.”

So if you accept responsibility for all the work you have outsourced, what do you do? You run pessimistic risk audits on your outsource provider; You shorten your command chain and sort out processes and procedures at the interface between yourself and your service provider; You regularly review the relationship, and fix pressure points; You treat Disaster Recover as more than a necessary evil; You share your thinking with your service providers. That’s just a start.

And it’s up to you to do it – don’t expect your outsource provider to fill the white spaces. Suppliers are often trashed by their clients for telling them there’s better, safer ways of doing things, or for pushing back and saying, “but there’s more”. Blame it on your ego. – you may be what my associate calls a PTD – proud, threatened, defensive. So suppliers treat you with kid gloves, and don’t raise the difficult questions. Remember the old adage “If you want to really understand a business, talk to the people on the ground”. When you outsource, your suppliers become “the people on the ground.” And they can’t operate in isolation, they will always be integral to your either your supply chain or delivery and support channels. Believe me, as markets and economies are under more strain the case for outsourcing is stronger than ever but, here’s the rub, the case for management and governance is greater than ever, whether you outsource or not.

As a number of outsourcing providers have told us: “Our clients don’t manage us properly.”
That’s still your responsibility.

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