Outsourcing Current State of Outsourcing

Outsourcing

Current State of Outsourcing

There are many strategic factors that companies consider before outsourcing one or several of their functional areas, processes, strategies and systems to outsource. While cost reduction is mentioned as the most prevalent reason for outsourcing a given functional area or process, the need for gaining greater expertise is just as common of a motivation. In many industries, the pace of innovation is so quick that the larger and more established companies have trouble keeping up, and outsourcing R&D to keep up with the pace of market leaders, especially in the software industry, has become commonplace (Boden, Nett, Wulf, 2010). The main catalyst however continues to be attaining greater cost reductions. As outsourcing is progressing so rapidly and its breadth of value increasing, cost reduction by reducing time-to-market is now becoming more accepted as a strategy in highly competitive industries as well (Atkins, Liang, 2010). The intent of this analysis is to evaluate the current state of literature and research on the effectiveness of outsourcing as of late 2010.

Analysis of Current Literature and Research

The pervasive use of outsourcing to gain needed expertise in attaining compliance to regulations and defined standards driven by the Sarbanes-Oxley Act (Hall, Liedtka, 2007) is now concentrating more on optimizing supply chain operations and performance (Mudambi, Venzin, 2010). As part of this shift to outsourcing to support supply chain performance, the use of 3rd party logistics providers (3PL), reliance on outsourcers to solve complex supply chain logistics problems through information systems investments, and business process re-engineering is now commonplace (Atkins, Liang, 2010). As part of the effort to streamline their supply chains, companies are also realizing that they can rely on outsourcers to act as knowledge management experts, guiding them how to better use their expertise to address strategic challenges (Grimpe, Kaiser, 2010).

Outsourcing has progressed from being entirely focused on cost reduction of manual or rote, low-end processes to a strategy for gaining expertise and streamlining every aspect of a company's go-to-market strategies as well. Outsourcing is now about creating alliances and partnerships to gain needed insights into new markets, how to streamline production and supply chain systems for greater speed and efficiency (Moon, Yao, Jiang, 2010). From this standpoint, outsourcing is more concerned with the strategic implications and incremental revenue gains vs. just the cost reductions over time. Companies are relying on outsourcing as a means to gain critical insight and to learn entirely new skills in the process (Grimpe, Kaiser, 2010). Outsourcing from this standpoint has evolved more into an alliance aimed at knowledge transfer. The reliance on this approach to outsourcing as a means of knowledge transfer has become so prevalent that joint ventures are beginning to occur between outsourcing providers and their largest customers (Moon, Yao, Jiang, 2010). Examples of this include Infosys creating alliances with Microsoft a an joint venture to outsource core it functions globally throughout the software provider first, and second, throughout shared enterprise customers. In conclusion, outsourcing has shifted from being purely focused on just cost reduction to being attuned to the needs of knowledge generation, joint ventures and the creation of long-term value through shared learning.