Outsourcing Change: Death of Middle Management?

State of Change

Welcome to the State of Change. In this column, you’ll find tips and techniques for dealing with the unique challenges of shared services and outsourcing change management, whether it is predicting responses, managing dissention, developing the right plan, coping with provider relationship issues, or communicating effectively.

Outsourcing Change: Death of Middle Management?

Peruse some of the hot management blogs, or the broadsheet management columns, and you’ll occasionally see a column on the demise of the middle management team. Some of these opinions, backed by very credible university research, say technology has become the new middle manager, playing the role of the corporate switching station. They say there’s no longer a need for a buffer between those who dictate and those who do not. A few pronounce that middle management is in the cross hairs of those nefarious Gen Xers who see those in the middle as barriers to their progress. And then there’s the sourcing change effect—as jobs move offshore, why should managers that cost a lot and seemingly add limited value be retained in the new organization?
Is middle management really dead due to outsourcing or shared services implementation, or rather, to paraphrase American author Mark Twain, are "the reports of (its) death greatly exaggerated?"

Certainly, the increasing adoption of sourced business models is a contributing culprit. One of the core benefits pushed by proponents of sourcing is the bandwidth to focus on outcomes, rather than the management of processes. With process management off the table, a substantial embedded management tier no longer has the same reason for existence.

Sourcing change comes hard to many of these tenured middlemen. Most of us have experienced first-hand their efforts to hold on to the previous delivery model during transition, sort of the management version of a death grip. In any corporate change, it’s generally the guys in the middle for whom maintaining the status quo is of paramount importance. A new paradigm typically means loss of prestige, control, and position… or creates a need to be retrained, or puts a hard-earned pension at risk. They have much more at stake than any other employment cohort.

Add to middle managers’ perceived value as paper pushers their cost, then contrast this with the need for new business model managers to have a-spatial and technological agility… and it’s a no- brainer to remove middle managers from the organization chart. What sourcing organization wants to retain an old world order?
But it’s not time to write the obituaries yet. The retention of middle management is vital to sourcing success. Why? Firstly, if the typical organization is made up of a series of interlocked or overlapping activities, it runs on a series of personal relationships. And these relationships must be grounded in a strong, mature understanding of the company culture and more. Technology, at least at this point in time, cannot navigate relationships.
Second, the organization must retain a certain degree of institutional knowledge. Looking at tenure patterns across the organization, those in the middle ranks are more likely to know where the skeletons are buried, and what shape interpersonal dynamics take—all critical in effecting sourcing change management. And that knowledge is not just of use when it comes to risk mitigation if the provider crashes or the shared services center implodes. Without institutional knowledge, it is impossible to act as a client, managing effectively on behalf of the organization.

Third, any sourced organization must embed governance throughout the enterprise. Managing remotely requires critical relationships and process management skill sets that the top brass ditched some time ago, and that the youngsters have not yet fully evolved. Governance is by nature an intervening function which naturally belongs to middle management.

Fourth, with a sourcing goal to deliver processes end-to-end, middle management plays a substantial role. Some level of management must be around to facilitate the handoffs between the delivery center and the upstream/downstream organizations. While implementation of workflow certainly alleviates some of the process, an overlay of judgment and experience is often necessary to ensure coordination, and also look for further opportunities to transform the process.

Many of the sourcing disasters we whisper about have not been due to aggressive contracting, or poor provider selection. A goodly number are directly attributed to assumptions about the value of the middle in business case formulation, resulting in overly aggressive organizational pruning to make the numbers work. This is not to say that middle management should be kept in situ in a sourced model, but rather, there should be acknowledgement of the role they play in keeping programs on track.

However, middle management capability as we know it must change in a sourced business model. Having deep competency in process mastery alone no longer delivers sufficient value to the organization; it can now be bought or enabled through technology. Much deeper business capabilities that are agnostic to process—managing knowledge, managing risk, managing a myriad of relationships, dealing with ambiguity, the ability to make critical decisions – in short, those capabilities that have historically separated the middle management "boys" from the executive "men," are now more vital than ever.

Let’s think about some of the capabilities a good middle manager must bring to the table in a sourced world:

• Service Orientation Sourcing changes the fundamental relationship between delivery and the customer. Middle managers now must find and act upon opportunities to create more value for customers while aligning the tenets of service delivery with the expectations and requirements of customers.
• End-to-end process mastery As sourcing changes process linkage, middle managers must manage a much broader range of processes, now navigating the convergence of cross-functional processes
• Virtual management skills In a sourcing paradigm, middle managers now manage people and technologies that are not under their direct control. Being able to assemble and orchestrate resources across the organization becomes a vital skill.
• Knowledge management The middle must be well versed in the business context, becoming both the keeper of institutional knowledge as well as the navigator of pockets of information across the enterprise in order to support sourcing decision making and innovation.
• Risk management In a dynamic environment, managers must be able to recognize and evaluate the impact of a range of factors upon continuous business delivery.

So the next time you start running the numbers in a sourcing business case, think hard about the role middle management should play. Someone has to manage the customers, navigate the politics, manage the risk and bring the right resources to bear. The world’s best practices and technology must still be managed by capable people.

If you are not convinced by now that sourcing change is a make or break for shared services and outsourcing success, come back next month.