In the past, I have spoken out against outsourcing machinery lubrication activities where the primary motivation is strictly limited to reducing the number of full-time employees or the so-called legacy costs.
I failed to see how such activities add long-term employment to the firm. I still believe that outsourcing decisions that are intended to “window-dress” the organization by reducing the full-time employee headcount, or those that offer only short-term financial gains, are dubious at best.
However, I have been reading extensively on the subject of outsourcing, and thanks primarily to the writings of two highly regarded business strategy icons, Peter F. Drucker and James B. Quinn, I have a new perspective that I wish to discuss with you in the context of outsourcing machinery lubrication activities.
Increasingly, we live in the world of the knowledge worker - an individual who works from the neck up. According to Drucker, as recently as the 1950s, 90 percent of all American workers were order takers - they did what they were told and worked under close supervision.
Employees were paid to do, not to think. Has that ever changed! In today’s industrial facilities, the organization has flattened dramatically and supervision is getting increasingly scarce. Even on the plant floor, today’s supervisor must set out fairly broad goals and job plans and empower the worker to make effective decisions about how to carry out the details of the job on his or her own.
Supervisors simply don’t have time to spoon-feed orders to employees. And the jobs are increasingly complex, requiring a great deal of specialized knowledge about various technologies and their use.
Even given the time, the supervisor couldn’t maintain sufficient expertise about the tasks performed by his or her reports to truly support them. Lubrication technicians are no exception.
A good lubrication technician must have a fundamental understanding about machinery engineering - how machines operate and what makes them fail, lubrication fundamentals, chemistry to understand the lubricants themselves, reliability engineering, maintenance engineering, etc., and all the technologies, software, gadgets and services required to make lubrication work in the plant.
Today’s lube tech is a knowledge worker with highly specialized skills.
Unfortunately, according to Drucker, firms are having a hard time achieving excellence, or maintaining a core competency, in all aspects of the operation. Quinn suggests that they shouldn’t even try. He suggests that firms maintain core competency in an activity only where it really counts. So, where does it count?
First, is your core process. If you are a widget maker and you have worked out a way to make the best and/or lowest-cost widget around, you need to make sure you keep a sharp edge on that competency, for it is the means by which the firm competes in the market.
Likewise, there may be peripheral activities that are unrelated to your core process, but the activity is so important to your customers that you choose to maintain core competency in those areas. For instance, if your largest customers demand that your first-rate widgets be packaged in a particular way, and it is not feasible to outsource that activity (due to freight costs, perishable nature of your widgets, etc.), then you had better maintain core competency in that area.
All other activities are considered peripheral and are targets for outsourcing. According to Quinn, attempts to maintain core competency in nonessential areas serve only to distract management from maintaining a sharp edge on the essential areas related to the core process or demanded by customers.
Rather, the firm should seek out the best provider of the nonessential product or service and partner with them, which renders the firm world-class by association in the nonessential activities without distracting management from the essential business areas.
Equipment maintenance, including machinery lubrication, is rarely a core process for manufacturing firms; nor is core competency in maintenance typically required by customers, not directly anyway, as they may have delivery reliability requirements and associated penalties.
But they don’t really care whether you achieve it through good maintenance, over-engineering equipment design, excessive redundancy, etc. According to Quinn, it is a good target for outsourcing.
There is a big difference in outsourcing to a “body shop” - an organization that simply provides workers - and what Drucker calls a professional employee organization (PEO), which offers expertise in a particular functional area or activity.
So how can a PEO add value to a paper mill, steel mill, plastics plant or other industrial firm? Quinn points out many distinct advantages to strategic outsourcing. I have selected several of them for discussion that I think are relevant to outsourcing machinery lubrication, or other maintenance functions.
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Attracting talent - Highly skilled specialists are not attracted to employment where their skill is an “also-ran” activity. They prefer to work for organizations where their skill is the prime directive. PEOs that specialize in lubrication offer this to the lubrication professional.
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Career path - If a lubrication professional wants to move up in the organization, it usually means leaving the field of lubrication to take a job in another functional area within the organization. A machinery lubrication PEO, on the other hand, does nothing but lubrication, so the employee’s career path is limited only by the firm’s growth and the individual’s performance.
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Specialists’ talents - Machinery lubrication PEOs are typically led and managed by experts in the field of machinery lubrication. These individuals understand the needs of the lubrication professionals they employ. As such, they can coach them, guide them, evaluate them, teach them and understand them. Most managers in plant settings are unable to maintain sufficient specialization in each technical area to perform these important functions.
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Functional integration - A machinery lubrication PEO can functionally integrate lubrication best practices across plants and across divisions within an organization.
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Often, the manufacturing or process firm lacks sufficient depth in machinery lubrication across the organization to achieve critical mass in proliferating best practice at other locations. Quinn suggests that is the most overlooked, but perhaps the most significant opportunity of outsourcing knowledge-based activities.
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Achieving innovation - The machinery lubrication PEO possesses the requisite expertise to innovate continuous improvement after raising the client firm to upper-quartile performance. The manufacturing or process organization usually employs a naive trial-and-error approach to innovation that is costly and rarely effective.
There are many potential pitfalls associated with outsourcing. To avoid them, make sure the firm and the PEO have congruent goals and values, develop multilevel contact systems and create a feedback system to leverage and share innovation. Top management support for the value of outsourcing machinery lubrication is a must. Without it, the culture may spell disaster for the outsourced program.
Also, when performing cost benefit analysis, managers often fail to consider the opportunity costs associated with not performing machinery lubrication correctly and the internal costs associated with achieving and maintaining core competency in machinery lubrication themselves. It is an important decision, so be sure to consider all the benefits and costs.
Machinery lubrication is knowledge work - and given its reliability implications, serious knowledge work to boot. The work demands lubrication professionals with the right skills to get the job done.
Under the right circumstances, when the firm outsources machinery lubrication to create value and competitive advantage, not just to cut costs and/or window-dress the organization, it can be a winning strategy. It can help foster or perpetuate a “best-in-world” attitude in the firm.
References
- Baruch, J., Quinn, J. and Zien, K. “Innovation Explosion.” New York: The Free Press, 1997.
- Drucker, P. “They’re Not Employees, They’re People.” Harvard Business Review, February 2002.
- Quinn, J. “Strategic Outsourcing: Leveraging Knowledge Capabilities.” Sloan Management Review, Summer 1999.
- Quinn, J. “Strategic Outsourcing.” Sloan Management Review, Summer 1994.
- Quinn, J. “Outsourcing Innovation; The New Engine of Growth.” Sloan 5. Management Review, Summer 2000.
