Outsourcing is an established fact of business life.  Manufacturing left the building decades ago being outsourced to foreign shores in search of cheap labor.  More recently the service sector has experienced similar erosion with call centers connecting us seamlessly to voices in far corners of the world. 

Most of us have experienced the joys of tech support from someone whose native language is not English.  It only amplifies the failure to communicate we’re already experiencing with an uncooperative computer screen — adding insult to injury.  So much for customer satisfaction.

While companies may be willing to forego some customer satisfaction in the name of cost savings, I wonder how many are willing to outsource their competitive edge?

In manufacturing it has often been said that innovation comes from doing.  If someone else is doing the work you fail to benefit from the innovation of practical experience — from the intellectual property that gets developed.

A recent article in the New York Law Journal explores the legal lining of the outsourcing decision.  It’s but one example how business and law are inextricably intertwined and how more legal literacy can help your business keep its competitive edge.

For more information about how to use the law for competitive business advantage see The Business Guide to Legal Literacy: What Every Manager Should Know About the Law.

     Among the 25 Best-Kept Secrets of the World’s Best Companies discussed by Business 2.0 is Colgate-Palmolive’s “bad news folders.”  More specifically, they have been described as an early-warning system designed to identify problems before the mushroom into a “company-wrecking crises.”

 According to the report, each day red plastic folders hit the desk of top-ranking Colgate executives, including CEO Reuben Mark’s desk, containing reports prepared by lower ranking managers about potential problems that are brewing.  For example,

When a report alerted Mark that officials in Baddi, India had questions about how a plant treated wastewater, Colgate quickly involved an engineering team to avoid potential embarrassment.

     The report goes on to say that one of the benefits of the folder system is that it is self-policing.  One executive said, “No one is going to report a problem and then not do anything about it.”  That maybe, but a well deserved tip of the hat goes to senior management who obviously have the correct incentive structure and corporate culture in place to allow employees to raise the red flags without fear of repercussion.

     This is a business practice success story that corporate compliance lawyers will want to share with their clients.  Not only did Colgate neutralized a potential smoking gun situation, they turned a potential legal problem into a business opportunity — the chance to protect their reputation and avoid an embarassing legal entanglement.