In the past, outsourcing served as a means of downsizing and cost reduction. Today it's used by all types of organizations as a central point in developing strategies for corporate growth.
During the last two decades, we’ve witnessed outsourcing go from national to global. Consider this: in 1993, 85% of business outsourcing in the US was conducted for US-based companies. Today the situation is completely different.
Outsourcing in the US - the present
According to recent outsourcing stats, the total number of jobs sent offshore by American companies in 2013 amounted to more than 2.5 million. 26% of surveyed CFOs said their top choice for outsourcing is India, followed by China at 18%. Together with Indonesia, these are the top 3 countries that American companies have chosen as their main outsourcing venues.
The study cited top reasons for outsourcing by American companies to be cost reduction, the ability to gain access to IT resources unavailable internally, or freeing up internal resources to improve business or customer focus. Outsourcing also played an important role in accelerating project delivery and company transformation.
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The benefits of outsourcing
There are many ways in which outsourcing can bring tangible benefits to an organization, but here are the top 4 aspects of outsourcing central to gaining a competitive advantage.
- Speeding up time to market. Outsourcing provides companies with a smart way to speed up their time to market, which can be achieved best by working with a partner. The best outsourcing partners are those who possess the required expertise, have a firm grasp on the local market and boast an ability to quickly and successfully introduce new products or services to their market. Outsourcing will be of particular value to those companies who plan to enter new markets; teaming up with local experienced partners means a quicker execution of the business plan.
- Leveraging new relationships. One of the most important strategic benefits of outsourcing is that after spending some time collaborating with offshore professionals, executives will be ready to leverage these relationships in a powerful way. Outsourcing understood in this sense can quickly lead to business innovation and transformation, allowing executives to fully benefit from the talent and qualifications of these professionals who are focused exclusively on their strong skills.
- Cost reduction. This advantage of outsourcing is rather obvious, but it leads to important insights. By reducing their investment in non-critical assets, companies are able to focus on those aspects of their operation that really matter, building a real competitive advantage. Outsourcing grants companies a higher degree of opportunity to perform new actions with a reduced financial burden. Embracing this flexibility, companies will also be able to make the most from the available investment capital.
- Focus on core competencies. With all the non-critical parts of their operation taken care of by outsourcing, companies can finally focus on what really counts in business success: the core competencies. Instead of losing their effectiveness on assets that don't add real value to customers, executives can concentrate on developing the skills that are directly connected to consumers. It's all quite simple really. If a company is stuck doing everything on its own, executives can hardly find the time to create and train in the skills that serve as the foundation of the organization's competitive advantage.
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All things considered, the benefits listed above shouldn't be taken without some level of critique. It became clear in the late 1990s that the obvious benefits of outsourcing can actually hide the real associated costs; as demonstrated in this study from a scholar at University of Cambridge.
Companies that choose to outsource do stand a chance at substantially improving their competitiveness on the market. But how do you use outsourcing effectively? Knowing the company’s core competencies is crucial. After all, they provide its competitive differentiation.
For strategic outsourcing to be successful, CEOs and executives need to define these competencies and map out the work of their business. Otherwise, they risk losing out on the distinctiveness of their products or services.
With smart assessment and careful planning, outsourcing can easily become a real asset and a strategic tool in fostering financial stability and growth.