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 Outsourcing's Next Wave
By Michael F. Corbett &
Associates, Ltd. 2002
July 15, 2002 - Time Inc. - Business changes come as waves
gathering shape, gaining energy and momentum, then crashing across the
companies that find themselves in their path. Those companies that
anticipate and react quickly to these waves of change can often rise with
the tide; those that don't are often crushed by the impact.
Technology, reengineering, the Internet, globalization, terrorism, Enron-itis
are some of the waves reshaping business today. Outsourcing is
another.
James Brian Quinn, best-selling author and resident Dartmouth College
business visionary, calls outsourcing "One of the greatest organizational
and industry structure shifts of the century." Harvard Business Review
similarly ranks outsourcing on its list of top business ideas of the past
100 years. Dun & Bradstreet estimates outsourcing to be a $1 trillion
global market and the Outsourcing Research Council reports that the typical
executive will soon be spending one-third of his or her budget on
outsourcing. In fact, some believe that it is still in its infancy.
So, what will outsourcing's next wave be? And, where will it come
from?
Outsourcing's Evolving Value Proposition
One wave is certainly outsourcing's emerging power as a business tool of
unique versatility and flexibility. Because outsourcing's impact comes from
leveraging the capabilities of outside providers and since businesses are
getting better and better at doing it well, it's now more a question of how
best to use outsourcing than one of whether or not to outsource at all.
In fact, very few decisions that an executive can make have the ability
to immediately change every aspect of the operations of a business - its
people, processes and technologies; its financial structure; its
relationship with its customers, suppliers, and shareholders the way
outsourcing does. As Peter Bourke, president of Spherion Outsourcing,
puts it, "Big gains in performance only come about through business
transformation." And outsourcing has the power to do just that.
In some cases, outsourcing means essentially selling the existing assets
of a company to an outside service provider and then working with that
provider's experts to improve those assets. The result: better use of
capital and potential gains in quality, productivity, and throughput.
In other cases, outsourcing is a way to take an existing fixed cost
structure and turn it into a variable one in which expenses can move up or
down as the business climate dictates.
Even before September 11, businesses were beginning to realize the
importance of this.
Today, having a more variable cost structure has become a real priority
for most executives. Creating that variability is now one of the top
three reasons companies outsource.
Why Companies Outsource
Cost reduction continues to matter and to be a key goal of outsourcing.
Businesses must constantly increase both their efficiency and quality and
therein drive greater profits to their bottom lines.
But almost as important as reducing costs is making sure that a business
stays focused on its core. Modern businesses are simply too complex,
and attempting to excel on your own at every aspect of your operations is
just not possible. A classic example: telecommunications networks.
"Many companies have literally built mini telephone companies within their
businesses," says Michael Dennis, Avaya group vice president, services.
"Outsourcing that to us allows them to put their energy into other
activities where they create greater value for their customers."
Business Process Outsourcing
Another wave to watch for is business process outsourcing, or BPO.
What businesses are now realizing is that outsourcing "what is" can
certainly provide marginal gains. Better yet is to outsource "what should
be," and that's where business process outsourcing comes in.
Business process outsourcing means examining the processes that make up
the business and its functional units, and then working with specialized
service providers to both reengineer and outsource these at the same time.
What areas lend themselves to this approach? Certainly, all of the
transaction-intensive activities that exist within the finance department,
human resources department, and purchasing groups and others - not to
mention document management. A company's documents are central to its
business processes. As one IKON customer, Alcon Laboratories, knows, a
specialized partner in this field is a real asset. Troy King, Alcon's
director of R&D operations services, says: "IKON's copy center manager
regularly works with our researchers and executives to better understand
their needs and the nuances of our specialized regulatory documents."
Offshore Outsourcing
Finally, there is offshore outsourcing. Although not new, this is
an area that is clearly gaining momentum, and it's probably not long before
any company that's not leveraging the global talent pool will find itself at
a severe competitive disadvantage. India is currently receiving a
great deal of attention; however, Eastern Europe, the Philippines, Vietnam,
and, perhaps most notably China, are moving swiftly onto the playing field
as well.
India, for example, has an enormous talent pool from which to draw highly
skilled outsourcing professionals. It has a population of more than 1
billion people, of which 300 million speak English. At any given
moment, more than 6 million people are enrolled in the subcontinent's 200
universities, 5,000 colleges, and 100,000 secondary schools.
Technology is shrinking global distances to the point where, in reality,
having work performed halfway around the world is not that much different
from having it done in an office building across the street.
As outsourcing's next wave hits, businesses that don't figure out a way
to ride it will be sacrificing significant competitive advantage. Yet,
as with all management tools, it will continue to be the ability of
forward-thinking executives to see around corners, anticipate and adapt to
change, and use outsourcing effectively within an overall framework of
continuous improvement that matters. As the recent dot-com implosion
has indelibly reminded all of us, the principles of sound business don't
change, just the techniques available to us as managers for their execution.
Reference: Copyright © 2002 Time Inc. All rights reserved.
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