Wednesday, February 29, 2012

Role of Trust in an outsourcing scenario

In the last blog, we looked at the possible reasons that could prevent a company from choosing to go ahead with outsourcing. In the current blog, we look at how the alignment of the economics related to outsourcing would change when one begins to consider the factor of trust.

It is common knowledge that Airtel has outsourced most of the network tower maintenance and equipment setting up to companies like Ericsson and IBM. Does it change anything in the equation when we have a pretty well known company to partner with? A careful look at the detail and we would begin realizing the benefits possible.

I read the following on a recent update on facebook status - "Trust is like an eraser, it becomes smaller after each mistake" I guess it’s also true that every time we adhere to what was promised the trust would grow! The brands we know today are not just a marketing head start - it is a good match of what was marketed with good operational execution. - IBM and Ericsson have built the brand this way.

When Airtel gets into an outsourcing agreement with these majors towards implementing the network - Airtel doesn’t have to really worry about hedging the opportunistic behavior to a great extent. A history of acceptable behavior by an organization generates a reputation of trustworthiness; this intern creates confidence in the companies that align with the organization. The trust that the 2 parties have on each other reduced the otherwise high "transaction cost" associated with such an outsourcing. 

In summary, it makes a lot more sense for a company to build a reputation - as a hedge against the possible opportunistic behavior. This reduces the transaction costs the 2 parties in the outsourcing would have to incur.

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