Optimum, Outsourcing, Innovation, Performance, Business Model

Optimum outsourcing: The engine for business model innovation and maximum business performance

12 May 2006 | (Thinking Point) | Richard Crespin

Outsourcing as a business strategy has reached a new plateau. Combining and concentrating the simultaneous outsourcing of multiple inter-related business processes delivers the innovative business model that leading corporations need to compete globally. This optimum outsourcing play radically changes the way the game is played because it blows up the hierarchically integrated corporation in favor of a distributed model for managing assets and resources. Reconfiguring and refocusing a company by collecting and outsourcing a wide range of inter-related tasks and processes rewards first movers with dramatic cost and cycle time savings that translate into magnitudes of competitive advantage.

Optimum outsourcing (O2) is like oxygen, a breath of fresh air in an otherwise commoditized marketplace. It replaces iterative, one-off outsourcing of specific tasks and functions with the recognition that functions which support the core business do not drive the business forward. And that accepts the notion that costs and performance can be best guaranteed by relying on experts outside the corporate entity.

CEO's Want Innovative Business Models

O2 requires organizations to accept their strengths and limitations and to restructure themselves to maximize the former and minimize the latter. It is the innovative business model that CEOs hunger for because it changes the fundamental underlying costs and assumptions that has driven business for the last 50 years and reduces the size and complexity of corporate operations to manageable levels.

Value to an organization can be created anywhere along the complex supply chain from partners to allies to vendors. It is no longer necessary or even desirable for a firm to own its non-core functions. In many ways the company that orchestrates the interplay of resources, relationships and raw materials best – wins. As tasks are aggregated and standardized economies of time and scale multiply. Making a single big change reduces ancillary costs in time, money, business disruption and staff anxiety. The bigger the scale; the bigger the impact on markets, customers, employees and shareholders.  

By efficiently outsourcing back office and non-core functions, companies eliminate costs and distractions, leverage critical points of differentiation and empower themselves to focus on core competitive differentiators. O2 is a critical component of a business ecosystem that globalizes and flattens corporate structures by rebalancing resources in service to continuous process improvement. 

Optimum Outsourcing Cuts Costs

O2 gives its first movers a 30 percent savings in cost and cycle time on the down stroke. This forever changes baseline cost factors and gives them dramatic flexibility to price and promise service delivery to customers in ways that competitors cannot touch. By standardizing and outsourcing processes and applications across enterprises, industries and geographies, costs are cut, labor is arbitraged and continuous performance improvement is baked in. Leveraging the synergy between related businesses processes, Optimum Outsourcing combines people, process and data efficiencies in ways that make a quantum difference and opens up a game-changing lead.

O2 is evolving out of the relentless search for business efficiency and effectiveness that has driven global businesses since the 1950s. It has been accelerated by the widespread use of the Internet, the deployment of sophisticated technology and the ability to find and engage skilled labor at variable price points. The availability of affordable technology and labor are vital levers in service to business strategy.

Globalization of labor markets and widespread adoption of outsourcing over the last 10 years has convinced market leaders that the bigger the scale the bigger the payoff. Now the most effective competitors will increase the scope of outsourcing to yields optimum rewards in terms of cost, competitiveness and performance. Perhaps the value of outsourcing will reach a point of diminishing returns in the future. But today it remains a fundamental strategic initiative.  

Social Consequences of Optimum Outsourcing

Moreover Optimum Outsourcing redistributes wealth on a global scale, builds connective tissue between and among peoples and cultures and contributes to peaceful resolution of political or cultural differences. It is the sinew that binds together a world shrunk by technology. And it promises to create understanding and empathy among people all over the globe.  

This is more than just a new take on outsourcing.  It is a fundamental shift in business strategy that will put the early adapters far ahead of their global competitors by giving them the ability to move faster and charge much less. The challenge for C level executives seeking to prosper in this environment is to embrace this new strategic paradigm to champion it to shareholders and employees and to find the right partner to implement O2.

Author: Crespin, Richard
More articles by this author... Related Content: