Outsourcing as a path to growth

The wave of outsourcing has not yet crested. Driven by a desire for more supply chain collaboration, businesses expect to expand their reliance on outside partners over the next three years, say executives who participated in a survey conducted by BusinessWeek Research Services and sponsored by SAP. Forty-five percent of the 350 survey takers were chief executive officers at their companies.

At present, respondents outsource 13.4 percent of their operations to third parties; that percentage is projected to reach 18 percent by 2011. Companies are farming out not only logistics and manufacturing but also such functions as research and development, marketing, human resources, and customer service.

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In the past, companies turned to outsiders to help them carry out certain functions at a lower cost. Indeed, cost control remains executives' top reason for outsourcing, with 67 percent of respondents reporting that as the prime reason they sought collaboration with outside parties.

But executives also are beginning to view contractors as collaborators on a pathway to growth. Two-thirds said that outsourcing provides them with access to new ideas, products, and skills—all factors that can lead to new business opportunities. Moreover, more than one-third (37 percent) said that a global collaboration strategy presented a way to access new markets and find new customers. Almost half (48 percent) said they believe that will be true three years from now.

Yet top executives are often disappointed by the quality of the products and services obtained from third parties. Twenty-eight percent of respondents said that collaboration with outsiders failed to meet their expectations for improved quality. Another 26 percent said that third parties did not live up to their expectations for increased revenue.

They have other worries, too: Only about half were confident that their information technology infrastructure would be able to support the technology needs of their collaboration strategies. And the overwhelming majority— 84 percent—expressed concern that complexity could prevent successful collaboration with outside partners.

[Source: "Getting Serious About Collaboration—How Companies Are Transforming Their Business Networks," Businessweek Research Services, June 2008]