What's Your Strategy For Outsourcing?

Most companies view outsourcing from a cost-reduction perspective and a source for non-core operations rather than a way to grow revenue. The good news is that this viewpoint is hitting the mark, with companies seeing an average cost savings of 13-15%. Those who viewed outsourcing as a means of growing revenue fell short of their expectations.

That's according to a recently released study, "Outsourcing Strategically for Sustainable Competitive Advantage," by CAPS: Center for Strategic Supply Research ,an organization affiliated with the Institute for Supply Management and the W. P. Carey School of Business at Arizona State University and A.T. Kearney that surveyed 165 companies from 24 industries.

"It's clear there are two different approaches to outsourcing at work," said Bill Markham, a principal with A.T. Kearney and co-leader of the study. "Companies seeking quick savings focus their efforts on finding less expensive alternatives to operating their business today. Companies focused on tomorrow's business needs are seeking more significant long-term benefits and looking to leverage marketplace skills, technologies and scale to cut costs and increase revenue."

While it appears everyone is outsourcing everything, the study found that 86% of the respondents outsource less than 25% of their activities. Of those companies surveyed, 36% outsourced in the IT area, followed by 32% in distribution/fulfillment, 30% in legal/regulatory affairs and 24% in manufacturing/operations.

Some advice for those exploring outsourcing:

  • Look at the political and social demographics of emerging economies.
  • Consider the dwindling natural resource supplies and how it will affect the future.
  • Seek skills and technologies from the marketplace rather than assuming these skills must be developed internally.
  • Align the roles and responsibilities from outsourcing activities across the corporate functions involved.

A copy of the report can be downloaded from http://www.atkearney.com or http://www.capsresearch.org.

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