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« Leading Economists, Thinkers and Outsourcing – Part 5: Thomas Friedman | Main | Leading Economists, Thinkers and Outsourcing – Part 3: Robert M. Solow »

Leading Economists, Thinkers and Outsourcing – Part 4: Steven D. Levitt and Stephen J. Dubner

Next in my mini-series on the seminal economic thinkers that have bearing on outsourcing I’d like to look at the more current and less theoretical side of the economics of outsourcing. There’s no better place to start than with Freakonomics and the follow-up mega-bestseller, SuperFreakonomics.

Steven D. Levitt and his sidekick and co-writer Stephen J. Dubnera journalist, offer a less academic, but no less important, view on economic behavior – what they call “the hidden side of everything.”

Levitt points out, “One of the most powerful laws of the universe is the law of unintended consequences.”  I think this law also greatly affects outsourcing deals. 

Conventional outsourcing typically found customers and their service providers developed basic transaction-based outsourcing arrangements supported by an overabundance of service level metrics and measurements.  The result was a focus on the minutia, not the true business outcomes that should have formed the foundation of the outsourcing relationship.  Another typical unintended consequence was the proscriptive fashion in which specific tasks were required and how those tasks were to be completed restrict the service providers ability to bring innovation to improve how the work is done, or to eliminate tasks that fail to add value.

Levitt has not won a Nobel Prize as yet, but he does have two New York Times best sellers and his lessons are well worth reading — and also much more reader-friendly for the most part than the Nobel winners I have written about previously.

In outsourcing, it’s important to heed Levitt’s advice: “Morality is what people should do. Economics is what people do.” 

If you want more from your outsourcing than to simply fill a seat to fulfill a task at the lowest possible cost – with all the unintended consequences that surely will result from that approach – consider an outsourcing business model that pays outsource providers for their brainpower and expertise, which will add real value and solve real problems while helping to achieve desired outcomes.

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