As service and product outsourcing become more commonplace, new organizational forms are emerging to facilitate these relationships. Chase Bank has created “shared services” units that compete with outside vendors to furnish services to the bank’s own operating units. Delta Airlines has established a “business partners” unit to oversee its relations with some 250 vendors and 2,600 contracts for ground crew and customer services at 186 airports around the world. Microsoft out-sources almost everything — from the manufacturing of its computer software to the distribution of its software products, thereby focusing the organization on its primary area of competitive advantage: the writing of software code. Still other firms are creating “strategic service” divisions in which activities formerly decentralized into autonomous business units are now being recentralized for outside contracting. As these various approaches suggest, the best ways to structure out-sourcing remain the subject of ongoing management debate and media coverage.1
As companies devise new forms of organization to assure that outsourcing works as intended, those responsible require a new blend of talents. Rather than issuing orders, managers must concentrate on negotiating results, replacing a skill for sending work “downward” with a talent for arranging work “outward.” Thus, the outsourcing of services necessitates lateral leadership.
We have reached these conclusions about the leadership capabilities required for outsourcing through intensive interviews conducted from 1997 to 1998 with 54 senior managers of twenty-five large firms in the United States and abroad and from a subsequent 1998 survey of 423 managers in U.S. companies (see sidebars about participants). What emerges from the in-depth interviews and the broader survey is a picture of a more demanding leadership environment, even as day-to-day management tasks are streamlined by outsourcing.