IBM Center for Applied Insights
What is driving these shifts? In a January 28, 2012 New York Times Op-Ed piece Made in the World , Thomas Friedman argues, “Many CEOs, …increasingly see the world as a place where their products can be made anywhere through global supply chains (often assembled with nonunion-protected labor) and sold everywhere.” Globally integrated supply chains are transforming traditional business models and shifting yesterday’s outsourcing choices and trade-offs.
IBM Center for Applied Insights
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Recent research suggests a shift in the traditional outsourcing market. Innovators are looking beyond outsourcing primarily for cost savings as they source for competitive advantage and desired business outcomes. Our paper is available,Pushing the limits of outsourcing: Innovators reinvent the services relationship, and can be accessed on the CAI homepage.
Mr. Friedman provides a provocative perspective. But, is this really happening?
The transfer of control of a process, product, or service to an external provider can take a variety of forms. The value in strategic outsourcing can include an organization’s ability to:
- Reduce costs
- Improve services delivery
- Engage in strategic partnerships that enable innovation, growth, and desired business outcomes
Traditional strategic outsourcing has often centered on transferring services to an external services provider with a focus on cost reduction. Outsourcing models are changing in new ways - why? What is driving these shifts and what can an organization do to capitalize on these changes?
Our team at the IBM Center for Applied Insights set out earlier this year to investigate market changes, identify emerging trends, and develop evidence-based research that explores how forward-thinking companies are responding to these trends.
Our premise is that the changing global dynamic, combined with technology-driven market shifts, is creating an opportunity for organizations to move beyond sourcing primarily for cost advantage to partnering for competitive advantage and desired business outcomes. Some of the technology-fueled market shifts reshaping the outsourcing landscape include:
- New and disruptive business models are changing how business is done
- Empowered consumers are driving companies to deliver customized client experiences to build enduring loyalty
- Big data generated from multiple sources is changing how organizations make decisions and leverage predictive insights for competitive advantage
Recently, IBM conducted a survey of 97 C-Suite Sourcing executives and found that seven out of ten plan to outsource for strategic reasons like driving growth and innovation. Based on their chief motivation, we categorized these organizations as:
- Cost-cutters–27 percent outsource their IT infrastructure to reduce operations costs
- Growth-seekers–37 percent outsource IT infrastructure, application management or business processes to achieve operational efficiencies and revenue growth
- Innovators–36 percent outsource multiple parts of the business to enable transformation and innovation
What we found most interesting was the progression of objectives across these three groups. Cost-cutters indicate they want one primary outcome from their sourcing relationships: cost savings. The majority of growth-seekers want to reduce costs, but also faster time to market for new products and services, and increased efficiency and effectiveness across the entire value chain. Innovators expect all of the above–and more. In addition to cost reduction, speed-to-market, and value chain efficiency, the majority of innovators want providers to help them:
- Drive front-office effectiveness (not just back-office)
- Better anticipate and respond to disruptive technological changes or market forces
- Proactively manage risk, compliance and security via technologies like predictive analytics
- Share risks and rewards based on business outcomes
I look forward to your comments and feedback!