Sourcing is the new outsourcing. If, in the past, companies were enamored by the prospects of cutting costs through outsourcing, today, they seek out unique talent and specialized skill-sets through this route. The need to cut costs has always been paramount; more so in today’s hyper-competitive business environment with razor-thin margins. But, companies are realizing that innovation is the key driver of competitive advantage in today’s marketplace. About 43% of the 9300 managers participating in McKinsey & Company’s Global Executive Survey specified innovation as the most important growth lever.
The Advantages of Sourcing
Thanks to the information revolution, customers are more educated and aware than ever before, and place a premium on “value” rather than “low cost.” Companies jostle with one another to provide more value for the same dollar, and in this regard, companies that are able to tap up to the “value addition” that outsourcing brings stand a good chance of success. The route towards “value addition” is innovation written all over it.
While traditional outsourcing relationships left the IT and business processes largely unchanged, Outsourcing 2.0 places emphasis on relationships where the provider can move up the value chain to offer domain-specific innovation. Such innovation manifests in many ways, such as helping the company to improve the product; reduce costs and time of getting product to market; improve product delivery; manage sustenance activities for the products depending on market feedback; and more. On the internal front, companies increasingly rely on innovation-based outsourcing to make their operations as efficient and cost-effective as possible, and to become more agile and flexible.
Ways to source
Companies can position their innovation-driven sourcing model in many ways:
- They could source talent from outside to fill in critical skill-gaps, or to enhance their knowledge base. The sourced talent would have knowledge and skills to do things better, work smarter rather than harder to reduce time-to-delivery, and have expertise in applying cutting edge technology to enhance the product or service. The success of such an innovation-based outsourcing model depends on promoting an entrepreneurial culture within the enterprise, and seamless collaboration. Smart companies implement virtual collaboration, such as video conferencing, along with outsourcing, thereby removing location and time constraints. They also ensure that their social, mobile, analytics and cloud technologies (SMAC) are top-notch and available for their outsourced partners as well.
- They could seek out talent from geographical areas that allow them to reduce time to market. Take the case of India or South-East Asia, which are approximately 12 hours behind the USA. A customer, placing an order in the evening, would normally have to wait until the next morning before the in-house employee starts working on the order. With outsourcing, the work is done while the customer and the company staff sleeps, and the customer gets the delivered product first thing in the morning.
How sourcing works
As much as 67% of European CIOs look to their outsourcing partner to develop ideas into new and improved processes. Examples of such CEOs walking their talk abounds, but the case of Brenntag, among the world’s leading chemical distribution enterprises, sums up the situation. To expand its Asia Pacific subsidiary’s IT systems to accommodate growth, it turned to an outsourcing partner not just to manage the set-up in a bid to reduce cost, but to devise and set up the entire system as well. This has offered the chemical major a flexible architecture, with leaner IT teams, scalability, cost predictability, and greater responsiveness to market developments.
Sourcing is the new outsourcing
To cut a long story short, outsourcing is no longer just about cost saving, it has evolved into a strategic tool that increases productivity and competitiveness 10-to-100 fold, and it could very well become the key driver that powers the new global economy.
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