Outsourcing comes of age: The rise of collaborative partnering*
Introduction Executive summary Outsourcing is a maturing success story The challenges The collaboration payoff Rising to the challenge of collaborative partnering 2 4 6 0 4
2 Outsourcing comes of age: The rise of collaborative partnering
IntroductionRecent research indicates many outsourcing deals collapse before the contract ends, citing rising costs and mistrust between service providers and customers, and implying saving money is not a sound reason to outsource. Some industry analysts and media pundits further translate the findings into painful trade-offs: cost savings vs. growth, speed vs. quality, and organisational cohesion vs. knowledgeand innovation. Others suggest outsourcing is in a death spiral... a decline fueled by structural risks, questionable cost savings, and multiple complexities. Their bottom line? Organisations will soon become disillusioned with outsourcing. Such predictions and assertions seem to fly in the face of an equally prominent group of influencers and media commentators continually heralding lucrativeoutsourcing deals, impressive benefits and uncapped growth projections. Offshore service providers are delivering 30-40% year-over-year revenue growth every quarter. Meanwhile their Westernbased competitors hurriedly expand their operations in emerging economies. Beyond rapid growth and geographic expansion, some service providers are helping outsourcing customers compete in new ways. They provide alevel of strategic and operational flexibility unattainable through any other means. In the 0th Annual PricewaterhouseCoopers2 CEO Survey, released in January 2007, we found that many top global executives believe they gain major competitive advantages from outsourcing. They identified functions like logistics, manufacturing, customer support and service, research & development, and humanresource management. The CEOs also described the growing importance of collaboration with suppliers and service providers as a way to mitigate complexity, reduce transaction costs, and gain competitive advantages.
We define outsourcing as the transfer of a business activity or function to a third party, usually along with people and/or know how. 2 PricewaterhouseCoopers refers to the network ofmember firms at PricewaterhouseCoopers
So what’s really happening here? Global research recently completed by PricewaterhouseCoopers (PwC) leads us to conclude that both perspectives have merit. Our findings indicate outsourcing is deeply established... an entrenched business strategy maturing and evolving to deliver value beyond just cost savings. On the other hand,respondents say that not all is perfect. Full benefits often remain unrealised and the outsourcing process itself – in its relentless move toward specialisation, innovation and new models – is not easy. To bring clarity to these issues, PwC interviewed nearly 300 executives, seeking insight into their oursourcing experience and views. The research, conducted worldwide in March and April 2007, leadsus to conclude that outsourcing is alive
and well; in fact it is growing, maturing and evolving to deliver value well beyond cost savings. This report presents results of our survey of 226 customers and 66 outsourcing service providers. We set out to explore some of the current trends: the growth of multisourcing, changes in customer supplier relationships, the emergence of new stakeholdersand new governance models. At its core, our research confirms the growing complexity of outsourcing. However, it also indicates sophisticated leaders don’t necessarily fear that complexity. For them, it is the normal path of a maturing business strategy and a manifestation of an increasingly global environment. As the examples of Apple and Airtel illustrate (below) the complexities of innovative...
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