Need for innovation driving outsourcing decisions

by Dean Berry

Traditionally sold as a way to control costs, outsourcing has met or exceeded expectations for companies across the United States.

Yet a new survey of nearly 300 senior finance executives from a cross-section of U.S. companies shows that outsourcing delivers other significant benefits that both advocates and critics of outsourcing often overlook.

According to the survey, commissioned by Capgemini and conducted by CFO Research Services, U.S. executives are using outsourcing not only to trim costs, but also as a strategic “secret weapon” to drive innovation and increase shareholder value. In fact, of the survey respondents who have used outsourcing long enough to evaluate its impact:

•    78 percent said outsourcing “met or exceeded” their expectations for enabling their companies to refocus attention on matters core to their businesses.

•    71 percent said outsourcing “met or exceeded” expectations to make regulatory compliance easier or less costly.

•    68 percent said outsourcing “met or exceeded” expectations to improve process speed.

•    67 percent said outsourcing “met or exceeded” expectations to reduce business performance risks.

With these kinds of results, it’s not surprising that Gartner—a technology research and consulting firm—expects the market for business process outsourcing (BPO) to reach $173 billion in 2007. The CFO study also found that nearly three out of four respondents said they plan to outsource even more in the future, and 17 percent say they will outsource everything that is not core to their business.

“Outsourcing has almost become a ticket to the game,” believes Catherine Smith, one of the executives included in the survey. 

As vice president and CFO of Kennametal Inc., a $2.3 billion maker of metal-cutting tools and mining and highway equipment based in Latrobe, Penn., Smith says “We have to be competitive on every front, and outsourcing is one way to get there.”

Although outsourcing won’t provide a silver-bullet solution to every business challenge, all companies should at least consider outsourcing, believes Tim Wolf, one of the executives included in the survey. He ought to know. As vice president and global CFO of Molson Coors Brewing Co., Wolf knows a thing or two about “silver bullets.”

“Outsourcing has to be a consideration,” Wolf says. “You can’t look at what other good, bigger more experience companies have done and ignore it as an alternative.”

When companies are considering outsourcing, Wolf believes it’s critical that they also consider which of their internal business processes could be better managed by a third party.

“You have to make sure you’re linking up with people who are students of the game, constantly spending time and money on R&D to figure out how to get better at what they do,” he says. “Otherwise, you’re just locking into somebody who’s going to be mediocre. You can keep it in-house and mediocre.”

Dean Berry is Vice President, Service Delivery, Capgemini Kansas City Service Center.
P | 816.347.7500
E | Dean.berry@Capgemini.com