Strategic Outsourcing
The Outsourcing Institute's own Frank Casale, recently sat down with Maurice Greaver, President of Greaver and Associates, and author of the newly published book "Strategic Outsourcing" (AMACOM publishing). Having experienced firsthand the different roles of outsourcing corporate executive, provider and consultant, it is clear that Mr.Greaver understands the issues and challenges to planning, evaluating, implementing and monitoring an outsourcing contract.
FC:Why is outsourcing such a fast growing transformation tool now?
MG:We have a convergence of a number of forces that have changed our business environment. These would include: 1) the competitive pressures of global economy, 2) fast changing technologies and niche competitors that can change industries overnight, and 3) institutional investors who demand a focused management that delivers bottom line results, adding to shareholder value. Also, the information available to shareholders and their ability to analyze and measure performance has advanced dramatically. In the government and not-for-profit sectors, we have more vocal constituencies who are demanding improved service for less taxes or dues. These and other forces have awakened management.
As a result, management teams cannot allow factors of production (including people, facilities, equipment, technologies, capital, etc.) to be underutilized. If they do, like a losing sports coach, they are quickly replaced. Accordingly, management teams are more open to change, and the transformation tools that can provide higher benefit/lower risk results. Used properly, outsourcing is such a tool.
FC:Why do organizations outsource?
MG:There are many "top five reasons to outsource" surveys floating around at any point in time, each with somewhat different results. This is not surprising, in that the population surveyed often varies, and the priority of the reasons to outsource often depends in which chair one sits. If CEOs are surveyed, the results are different from CFOs who are surveyed, and those results are different from CIOs and others who are surveyed. In any event, just as the probability of another person's suit of clothes fitting you exactly is remote, so to is the probability of another executive's or organization's reasons to outsource fitting your organization equally remote. What is critical, is that you understand your reasons for considering outsourcing, and the benefits you seek.
A list of 20 examples of reasons to outsource and the related benefits sought are summarized as follows:
Organizationally Driven
- Enhance effectiveness by focusing on what you do best
- Increase flexibility to meet changing business conditions, demand for products/services, and technologies
- Transform the organization
- Increase product/service, customer satisfaction and shareholder value
- Improve operating performance
- Obtain expertise, skills and technologies, which would not otherwise be available
- Improve management and control
- Improve risk management
- Receive innovative ideas for improving the business, products, services, etc.
- Improve credibility and image by associating with superior providers
- Reduce investments in assets freeing up these resources for other purposes
- Generate cash by transferring assets to the provider
- Gain market access and business opportunities through the provider's network
- Accelerate expansion by tapping into the provider's developed capacity, processes and systems
- Expand sales and production capacity during periods when such expansion could not be financed
- Commercially exploit the existing skills
- Reduce costs through superior provider performance and the provider's lower cost structure
- Turn fixed costs into variable costs
- Give employees a stronger career path
- Increase commitment and energy in non-core areas
- While it is not an exhaustive list, it should provide food for thought.
Source: Survey of Stategic Outsourcing
The Outsourcing Institute