Relationships the bottom line of outsourcing, not cost

Outsourcing should not be seen as "rocket science" but a simple relationship management tool for achieving a competitive and sustainable business, a leading outsourcing consultant told the Australian Outsourcing Summit today.

"We're dealing with a very fundamental re-thinking and restructuring of organisations which will accelerate change in what we do as managers and what we do for customers" said Michael Corbett, executive director of the Outsourcing Research Council.

The successful outsourcing model rests on a three-pronged approached, according to Corbett. Businesses need to focus on developing core competencies, forming strategic relationships with proven suppliers in an "active" marketplace and aiming for "virtual business" status.

"Establish what your core competencies are by asking yourself if other companies would hire you," he advised.

Capturing and integrating knowledge from external relationships and applying that expertise to customer relationships was the crux of outsourcing, Corbett said.

Securing senior level support and involvement for outsourcing initiatives was also a crucial factor for success, he said. "You cannot manage the relationships with a turn-key approach, but with leadership from above, negotiation and integration with the inside organisation."

According to Corbett's predictions, the global outsourcing market will generate $US1 trillion in earnings this year, up from $US500 billion in 1999. This figure includes internet sourcing, supplementary staffing, outsourcing and external investments like joint ventures and alliances.

North America comprised 39 per cent of global outsourcing spend in 1999, followed by Asia (32 per cent) and Europe (24 per cent). Australia represented 3 per cent of the market.

According to Zia Qureshi, managing director of IT consultancy Business Catalyst Information -- the Australian arm of the Outsourcing Research Council -- Australia housed "pockets of excellence" in outsourcing. "Australia is implementing strategies that were (discussed) in the US six months ago," he said.

Australian outsourcing expenditure was $30 billion this year, or one twentieth of US expenditure, which Corbett rated as impressive.

The major drivers behind global growth in outsourcing were industry convergence, where traditional companies were aligning with internet companies (as in the Time Warner and AOL merger), the need for instant data and end products in the internet age ("your competition is only a mouse-click away"), and the impact of globalisation, which created pressure to form long-term strategic alliances.

Corbett cited ChryslerDaimler as one of the most notable outsourcing success stories. According to Corbett, the manufacturer felt it had "no choice" but to outsource everything outside its core competencies (product design and marketing), making substantial cost savings in the process, he said.

ChryslerDaimler succeeded in contracting relationships by adopting a "platform team" approach, integrating product design, engineering, marketing, distribution and IT functions at the time of product inception, Corbett said.

The integrated approach shifted the company from old-world transaction-based production to a relationship-driven model.

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