“Outsourcing is an all-weather concept”

IIPM, GURGAON

Outsourcing of services is now being taken up as a strategy to optimise costs and enhance efficiency with the vision of building significant competitive advantage

Companies outsource services to gain the advantage of the expertise, accountability, shared resources and procurement leveraged through economies of scale offered by the services partner. Building competence in every aspect of business operations involves significant investment of time, effort and money. Developing excellence in every aspect is a near improbability, therefore, corporations rely on outsourcing to attain superior standard of services in a cost rationalised manner. With outsourced services, corporations can enter service agreements with clearly defined output expectations instead of having to hire personnel to undertake these activities. This relieves corporations of the costs, efforts and risks associated with the outsourced functions.

In fact, outsourcing is an all-weather concept. While in good times companies outsource to achieve rapid scaling up of support infrastructure, in lean economic times they do it to achieve cost efficiencies. This was also the case in the early 1990s when companies started to outsource facilities, management and administration services in the UK market experiencing recession at that time. In addition to recession, other Political, Economic, Social and Technological (PEST) drivers that have fueled the growth of outsourcing in mature markets are privatisation, globalisation and public private partnerships. These various initiatives, targeted at increasing efficiency, have employed the services of outsourced partners to manage a myriad of non-core services ranging from the outsourcing of supporting services for military bases, prisons, traffic control systems and public sector infrastructure.

The opportunities for outsourcing in India pertain not only to gaining the standard advantages of specialisation, accountability and cost control, they are also fuelled by the immense opportunities emerging in markets traditionally considered hinterland. The rise of Tier II and Tier III Indian cities as hubs of commercial activity has given rise to the demand for high quality workspaces and superior caliber outsourced services to support operations.

A strategically developed outsourced service has been proven to enhance bottom line performance. It impacts a corporation on many fronts – tacit and obvious. From the perspective of outsourced facilities services, as an example, a strategic approach to outsourcing integrated facilities services can minimise core business downtime, improve productivity, prolong and protect assets, reduce capital expenditure, enhance sustainability, minimise risk, and help to enhance reputation and brand among others. Companies that outsource the management of their facilities and other related functions to experts are capable of focusing on their core competence to increase productivity. Outsourcing of services is, therefore, increasingly being recognised as a short/mid term strategy to optimise costs and enhance efficiency with the long term vision of building significant competitive advantage.

In fact, apart from core competence, which is the inherent basic activity of a corporation to achieve its strategic objective, everything else can be outsourced. For instance, marketing and coordinating sales of cars is the core competence of an automobile brand. Potentially, an automobile corporation can work with specialist service partners to outsource every other aspect including operations and maintenance of the various elements of the production process, recruitment of personnel, payroll administration, logistics, et al, but the short answer to the question of whether core competence can or should be outsourced is “No.” It is interesting to note that when many firms embraced Business Process Reengineering (BPR) in the 1990s, majority limited this activity to their core business. Outsourcing to specialists is a method of introducing BPR and enhancing the efficiency of non-core business services. If the outsourcing specialist is an expert in his field, the risk should actually be keeping these services in-house.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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