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"Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives"

by Maurice F. Greaver II

314 pages; AMACOM, New York


Review by Madanmohan Rao (madan@techsparks.com)

Though outsourcing is picking up steam in the corporate world, many managers tend to underestimate the seriousness and complexity of designing and implementing successful relationships for outsourcing and repeat outsourcing. Geared at managers involved in strategic change, this book is a comprehensive reference guide for the entire chain of outsourcing activities and processes.

Maurice F. Greaver II is a former corporate CFO and CPA at Haskins & Sells. He is a management consultant in strategic outsourcing.

Outsourcing should not be viewed as a short-cut, quick-fix or magic wand. It is not an isolated activity but can have wider ramifications for a company's strategic objectives, Greaver begins.

The 21 chapters are divided into seven sections, one for each of the author's suggested steps to successful outsourcing: planning initiatives, exploring strategic implications, analyzing costs/performance, selecting providers, negotiating terms, transitioning resources and managing relationships.

The book also provides numerous case studies of outsourcing in action, such as DuPont's outsourcing of IT infrastructure to CSC and Andersen Consulting, and APAC Teleservices' call centre support for the Farmers Insurance Group.

Outsourcing can bring strategic advantage via a number of areas ranging from IT systems and document processing to audits and management services. Outsourcing is growing rapidly in areas like information systems, accounting, finance and marketing.

"Cutting edge technology and knowledge are now recognized as competitive weapons but are expensive to acquire and successful results are often elusive when implemented internally," Greaver says.

There are numerous drivers for outsourcing: organizational factors (eg. transformation), improvement (eg. acquire innovative ideas), finance (eg. reduce investments in assets), revenue (eg. accelerate market expansion), cost (eg. turn fixed costs into variable costs), and employee issues (eg. give them a stronger career path). Such outsourcing can span three activity levels: individual, process and function.

"Strategic outsourcing takes outsourcing to a higher level by asking fundamental questions about outsourcing's relevance to the organization and its vision of the future, as well as current and future core competencies, structure, costs, performance and competitive advantages," says Greaver.

Outsourcing is not without its risks, Greaver cautions - these can include perceptions of uncertainty, loss of control, loss of core competencies, employee unhappiness, improper contract management, difficulty in reversal, and even failure. Still, if properly aligned with strategy, outsourcing is a powerful tool for restructuring at the level of operations, assets and financing.

Therefore the contract document must include scope of services, factors of production, performance standards, transition provisions, management and control, and provisions for extension or termination.

"In today's fast-changing environment, staying the same is riskier than outsourcing," Greaver believes. He also identifies emerging trends in outsourcing: the maturing of outsourcing relationships into strategic partnerships, sharing of control and rewards between the contractual partners, and the recognition that low price is generally not the only (or even the best) determinate of provider selection. Thus, outsourcing is not just about cost cutting but improved productivity, quality and creativity by leveraging the outsourcing provider's superior performance and capacities.

Greaver also recommends the use of outside advisors for activities like project facilitation, project plan reviews, contract negotiation and dispute arbitration. Outsourcing can incur additional costs which must be factored in, such as training costs, additional inspections, travel and new paperwork. Pricing models can vary: fixed price, hourly fee, pay per performance and gain sharing.

"Market power mostly derives from one's skill at bringing together the best network of insiders and outsiders," according to management guru Tom Peters. Outsourcing vendors are an integral part of this network and are valuable "outsiders" in this regard, says Greaver.

Attributes to look for in an outsourcing provider include clear vision of the outsourcing market, reputation, proven customer satisfaction, shared approach to problem solving, and strong transition performance.

In a turbulent global economy, the outsourcing relationship must also make provisions for volume changes, service changes, and even foreign currency translation. And after the outsourcing contract has expired, it can be either extended or opened up for re-competition.

In the long run, Greaver concludes, well-managed outsourcing can increase product and service value, customer satisfaction and shareholder value.


Madanmohan Rao is the author of "The Asia-Pacific Internet Handbook" and can be reached at madan@techsparks.com

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