Leading Laterally in Company Outsourcing

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As companies rapidly expand the use of outsourcing, executives are discovering that the management of outsourcing projects requires a new blend of leadership qualities. Firms involved in outsourcing are seeking managers with capacities for lateral leadership — the ability to negotiate results "outward" across boundaries rather than issue orders "downward" through a hierarchy. The authors interviewed 54 managers and surveyed 423 managers working at diverse firms and organizations from 1997 to 1998, and they present their findings in this article.

Companies are looking for four specific capabilities in managers responsible for outsourcing initiatives:

• Strategic thinking. The ability to understand whether and how to outsource in ways that improve competitive advantage.

• Deal making. The ability to broker deals in two directions simultaneously — securing the right services from external providers and ensuring their use by internal managers.

• Partnership governing. The ability to oversee the relationship proactively to ensure service quality and financial benefit for both sides.

• Managing change. The ability to anticipate resistance to change and to surmount it constructively.

Managers employed at large and small companies in both the manufacturing and financial services sectors consistently stressed the importance of all four capabilities. Whether hiring anew or promoting from within, managers are willing to pay a significant premium for these skills. Two-thirds said they would pay at least 6 percent additional for each capability, and one-third were prepared to pay 11 percent or more.

The authors point out that lateral leadership of outsourcing initiatives works best when top management is solidly supportive and when companies have built a finely honed system to quantify results and pinpoint accountability.

For companies that are increasing their outsourcing of services and products, this new blend of leadership skills requires novel ways of recruiting and developing managers because relatively few possess the full repertoire of lateral capabilities required for effective sourcing.

Michael Useem is professor of management and director of the Center for Leadership and Change Management at the Wharton School, University of Pennsylvania. Joseph Harder is an associate professor of business administration, Darden Graduate School of Business Administration, University of Virginia.

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