Outsourcing for Strategic Value, Not to Cut Costs

A new study released by consulting firm Accenture shows that businesses are shifting away from outsourcing as a cost cutting measure and instead viewing outsourcing as strategic value proposition. Despite its cost reducing roots, outsourcing is gaining appeal for its benefits that include giving business executives more control over predicting business results and supporting strategic business planning. In interviews with more than 800 executives in the healthcare, manufacturing, retail, and travel industries in the United States and Europe, the study found that 86 percent of respondents claim outsourcing gives them more control over business results in a variety of critical areas, the most important being the ability to plan. The executives also reported equal levels of control in reliability, cost variability improvements, and effective implementation of ideas. Speed is also an issue. Fifty-five percent of those surveyed say that outsourcing allows their companies to implement strategies and change at a faster and more controlled rate. So what is being outsourced? Forty-three percent of respondents say their organizations outsource IT functions and processes. Supply chain leads the pack with 36 percent saying that is a function they outsource. Learning/training functions are outsourced 31 percent of the time, followed by human resources at 25 percent. Rounding out the pack, finance and accounting are outsourced 21 percent of the time. Customer relationship management is not outsourced as frequently, at 13 percent. "The shift in thinking about outsourcing underlies how the outsourcing process is maturing," John Rollins, a partner in Accenture's products operating group and coauthor of the report, said in a statement. "Outsourcing has become a tool for management beyond the traditonal reducing costs. It is now a lever to drive better value for customers and shareholders." "With CRM much of the outsourcing is in the call center, although some CRM implementation programs are being developed with outsourcing partners," Rollins says. "I also think you can take the argument of maturity and naturally extend it to the ASP or hosted model. So, as people's thinking about giving up control to partners increases, they may be more likely to embrace a hosted CRM solution." More than 80 percent of the executives surveyed say they are committed to outsourcing at least one business function permanently. Only 14 percent said they plan to use outsourcing on a temporary basis to rehabilitate key functions and return them in-house once efficiencies are realized. Fifty-seven percent of those surveyed claim they experienced control gains within the first eight months of an outsourcing agreement. Of these, 47 percent (or 27 percent of all respondents) say they saw control improve as soon as the deal was signed; the remaining 53 percent (or 30 percent of all respondents) say that control increased once operations were transferred and stabilized--an adjustment period that typically lasts six to eight months. Most outsourcing agreements are structured to last five to 10 years. Regarding cost benefits of outsourcing, nearly three-quarters (73 percent) say they would redistribute that to the company's bottom line or growth efforts.