22 Nov 2016 20:00 IST

Having skin in the game

Pic credit: Golden Sikorka/Shutterstock

In today’s world of specialisation, there is no substitute for getting involved

You’re having sleepless nights — you are fidgety and indecisive. Your board has asked you to outsource important business processes to an IT vendor to cut fixed costs and improve your ability to scale up when demand picks up.

You have short-listed three IT vendors, and all seem capable, with good track records. To make matters clearer, you attend a trade event and exchange notes with your counterparts in other companies.

One of the IT vendors, you hear, has shifted key resources to a bigger, more lucrative project, leaving the client to ‘train’ new people assigned to the project. You also hear that the vendor’s CEO had made himself scarce after the contract was signed. The vendor’s VP returns your call and shows up for review meetings, but things slide from bad to worse.

You return with a plan to review the entire vendor evaluation report. You call the team who worked on the evaluation but suddenly notice that the average tenure of the three bright team members in your company is just six months. Which means none of them may be around after the outsourcing contract is signed, when it is actually time to make it work.

Dealing with things

You procrastinate. You realise that you are dealing with people and organisations who seem to have ‘no skin in the game’ — which means they aren’t financially invested in a project or situation.

If you ask your vendors about it, they protest, saying they have a good reputation and will do everything to protect it. “So we do have skin in the game,” they will say.

But it is your call to determine if this is indeed true.

You investment advisor asks you to invest or cash out. He has no skin in the game; should his advice go wrong, you will suffer a loss, not him. You consult your doctor about some ailment — if you recover, well and good. But if your condition worsens, your doctor won’t refund his fees.

Necessary evil?

There is much to be said in favour of specialist expertise and professionalism. Without these, much of the modern life would be impossible. Yet the fact is, as Nassim Nicholas Taleb (author of books: Fooled by Randomness, The Black Swan, and Antifragile) says: Many kinds of people, like bureaucrats, consultants, business executives, data miners, politicians, and bankers, have no skin in the game because they get to keep upside of their ‘work’ and they don’t face the downside should things go wrong. Check out how many bankers lost their livelihoods as a result of the financial meltdown in 2008, even as a large number of ordinary people lost their life-time savings invested with these same banks.

As against the above category of people, citizens, artisans, entrepreneurs, writers, speculators (with own money) and traders, all have skin in their respective ‘games’, Taleb writes.

It seems to be that having to deal with people without skin in their games is the necessary evil of modern life. But the question remains — how do you deal with such situations?

Dealing with situations

One should consult people on the ground — those in the trenches and those who work on the front-lines. Talk to the one who would be the last man standing: the good old method of asking around is still valuable.

Talk to the programmers and on-site people working with your prospective IT vendors or to those who know them closely. If you are hiring a consultant, don’t just ask him about his expertise. Also question him about the downside, about what can go wrong. Ask him how to handle those risks.

If you are depending on your team for inputs on long-term decisions, ask them how things will pan out, should they be not around, and about uncertainties that can crop up.

Lookout signs

When asking these questions, look for signs of unease, caginess, bravado and arrogance. Watch out for overuse of jargon, since it is often used to hide ignorance or lack of application. It can also be used to manipulate your thinking.

Familiarise yourself with the subject. Read up, ask around. Even in today’s world of specialisation, there is no substitute for getting involved in the subject.

After all, you may be the only person who has skin in the game.