While the common public stereotype of outsourcing may be to make financial savings by taking advantage of lower-cost labour in another country (known as “offshoring”), outsourcing can be domestic as well as foreign. It can also give the client access to expertise and to a level of productivity not available in-house. When a skill or production deficit exists (frequently in information technology) and the service provider can furnish a remedy, an outsourcing solution can meet the needs of both parties.
Though the “father” of outsourcing may well be the early 19th-century British economist David Ricardo with his economic principle of “comparative advantage”, it was only in 1989 that imaging solutions company Eastman Kodak took the then revolutionary step of outsourcing its information technology systems.
Up until that time, the ideal model for business was a large and well-integrated company that owned, managed and directly controlled its assets. But large corporations found themselves unable to compete globally as bloated management structures hindered flexibility. Diversification became a rallying cry to broaden corporate bases and take advantage of economies of scale. For many large companies, this resulted in a strategy of concentrating on core business and competencies, identifying what was critical to the company’s future growth and what was not.
While outsourcing might appear to be an ideal solution for entities desirous of keeping overheads as low as possible and that infernal “head count” down, there are also perils to avoid.
Many studies have been carried out to examine the pros and cons of outsourcing. Booz Allen Hamilton, a leading management and technology consultancy, issued a report in 2014 describing “a mixed report card on traditional outsourcing”. It nevertheless pointed out: “Savings typically result because the outsourcing supplier can access a cheaper, more flexible workforce and the latest, most efficient technology. Organizations claim that they achieve, on average, a 15 % cost reduction through outsourcing.”
Datamark Incorporated, which delivers enterprise content management services to Fortune 500 companies, backs these claims. In its 2014 White Paper, it performed single-year and multi-year cost analyses for “individual item” business process outsourcing decisions. Taking a representative sample from the businesses under study, Datamark found cost savings of 31?% on a single-year cost analysis, while a three-year study of the same sampled business showed savings of 33?%. This obviously represents a very significant decrease in expenditure for some businesses and gives impetus to others to follow this attractive business model.
Among the experts who were called upon, Dr. Keeni was a key contributor. As she told us, “It was a challenge to accommodate the viewpoints of all stakeholders, in the public and private sectors.” Nevertheless, she praised the collaborative spirit of all, which was key to resolving conflicting points of view over complicated requirements, in particular regarding whether innovation and continuous improvement should be factored into the life cycle, or if the importance of not infringing contractual requirements should take precedence.
Quayle, for his part, explained, “As well as focusing on the common processes and best practices for success, the team put governance at the heart of the standard. Experience has shown that many of the problems arise from the lack of, or poor, governance practices.”
The economies of scale, financial rewards, as well as the flexibility and increased productivity promised by outsourcing, will be a hot commodity for years to come.