No Crystal Ball Required

I’ve learned a thing or two in the course of a long corporate career and survived a handful of business cycles. Thirty-plus years of experience sometimes outweighs the value of a bright, shiny Ivy-League MBA when it comes to making common sense decisions. It's not all about the balance sheet and short term profits, friends and colleagues.

This fortune-teller knows that no crystal ball is required to predict exactly what is going to happen as a result of recent misguided business decisions being made by a real corporation that I prefer to leave unidentified. I can tell you what is going to happen and how. Alas, it’s a curse to be able to see the future…

THE SITUATION
Several years ago, an infamous private equity firm (“The Firm”) acquired a renowned publicly-traded company (“The Company”), and took it private. Based on The Firm’s track record and M.O., it was understood that The Company would be reorganized, downsized, squeezed mercilessly for profit, and either sold or re-introduced into the market as a whole, or in surgically-fragmented parts. The big guys stand to make mega-millions this way, although it may take a little longer than planned considering that The Firm paid top dollar during financial heydays.

THE DECISIONS
Select service functions, managed successfully within The Company for years, are now seen as undesirable corporate expense and are being outsourced. It looks better in The Company’s financials to have fewer “head count” and lower labor-related expense (i.e. pesky costs like employee health care and payroll taxes). Scores of jobs with The Company were eliminated and large contracts with external vendors were executed. Most notably, several IT support functions were outsourced to vendors, with current middle-management tasked with implementing the decision dictated by senior executives.

MY PREDICTION

1. Customer satisfaction will erode with the quality of support provided by the call center(s). The vendors will resist providing metrics that facilitate apples to apples performance comparisons to obfuscate that fact, but the truth will come out.
2. Call volume will drop, because customers will begin to realize that they won’t get the help they need if they call. Why waste time trying? Vendors and senior IT management will declare the reduction in call volume a sign of success. When coupled with the reduction in cost, they will consider themselves geniuses for their outsourcing decision.
3. Dissatisfaction with support services will foment into serious complaints to senior business management outside the IT/support arena. When challenged, senior IT management will respond by torturing the middle management responsible for implementing their outsourcing strategy, demanding that they “Make it work”.
4. When flogging middle-management fails to improve the situation, other support functions will pop up within the business, outside of IT, to compensate for the lack of effective support provided by IT. Support expenses will rise, but they will be hidden by their distribution within the business, and by creative naming of the new business functions.
5. The relationship between IT and the rest of the company will deteriorate. IT will revert to its natural status of corporate Whipping Boy.
6. Finally and eventually, at least some support functions will be brought back in-house. Having dismantled a mature, successful organization, senior IT management will have to find someone willing to build a new one from scratch (an expensive undertaking). Seriously now, did that save any money? (Of course, “The Firm” won’t care if they are able to stall until The Company is sold.)

OUT ON A LIMB
One last thought that is more a risk management consideration than a prediction: Support costs are being reduced and systems development has all but halted. Customers are not receiving the product enhancements to which they have become accustomed and are entitled – to which a substantial portion of their maintenance fees has historically been allocated. The Company’s maintenance expenses are substantially lower. Support was never defined as a revenue center. Are the fees charged to customers being reduced accordingly? Savvy customers could unite and demand an accounting and/or file a class-action lawsuit. I’m just sayin’…