What is strategic outsourcing

Strategic outsourcing

STRATEGY | GENIOS WirtschaftsWissen No. 10/2002 from October 16, 2002

Contribution

Outsourcing means the concentration of a company on the core business by outsourcing peripheral areas. Strategic outsourcing includes more than just the goal of minimizing costs in peripheral areas, it encompasses all traditional areas of a company.

Areas such as research and development, quality management, sales, etc. are outsourced in order to increase the company's chances of success in the long term. Product development, growth, competitiveness, market access and quality assurance therefore come to the fore in strategic outsourcing. The involvement of the outsourcing provider in the success and risk of the area to be outsourced also plays an important role. H. the cooperation between service provider and customer is gaining in importance. (1), (8)

When outsourcing entire business processes, one speaks of business process outsourcing. This was previously common in the field of information technology, but is now also used for other business processes, e.g. B. Payroll applied. This variant of outsourcing can also take place in the form of a new company, i.e. H. the department to be outsourced establishes its own company together with the outsourcing provider, which operates under the leadership of the service provider. The employees of the former department move to the new company and are supported and trained by the employees of the service provider. (2)

Another form of strategic outsourcing is business transformation outsourcing. In addition to the specified performance or service levels, certain performance improvements are agreed in the outsourcing contract. A capital participation by the service provider is also common here. (2)



Critical success factors for the outsourcing provider

References are crucial for placing an order with an external service provider. In order to dispel reservations such as poor service quality, adherence to deadlines and budgets as well as support bottlenecks, it makes sense to enable potential customers to exchange experiences with existing customers. In addition, it must be emphasized that experience has already been gained in the customer industry and that capacities are available both regionally and internationally for the desired outsourcing project. Also of note is the use of advanced technology and financial stability in the past. In the case of IT outsourcing, special emphasis must be placed on the technical competence of the provider. (4), (7)



Critical success factors for the customer

Even when developing business scenarios, it is important to let the service provider participate in the planning in order to clarify the interrelationships between individual processes and to better define the possibilities of the project. It is also important to ensure that the provider's performance is sufficiently transparent for the customer. The result of the service provided must be measurable. This is done through service level agreements, which contain goals, key figures, measurement methods, measures and sanctions in the event of deviations from the specifications. This can prevent the outsourcing provider from wasting a fixed budget in an uncontrolled manner. (5), (7)



Problems

An overview of the internal processes of a company is often not available. It is difficult for a provider to process processes to be outsourced and to deliver measurable results quickly, as cross-relationships to other projects or departments can often not be taken into account. The cause of this problem often does not lie with the outsourcing provider, but in the company's own structure. (7)

Non-strategic outsourcing projects that are designed purely to reduce costs usually fail in the first twelve months. Therefore, dependency on a service provider for a longer period of time should be avoided, i. H. Short-term contracts are advisable as a test phase if you are uncertain about the outsourcing offer. (9)

The lack of a suitable communication strategy in the company also causes difficulties. Often too late or too little information is given about upcoming outsourcing projects within the company, which can fuel displeasure and distrust in the workforce. (9)

After all, there is often a lack of staff in the specialist departments who can take over the strategic application and contract management for an outsourcing project. It may therefore make sense to recruit suitable personnel from outside or within the company. (9)



Case studies



Compared to the USA or Great Britain, German companies still use relatively few IT experts from India for software development. The reasons for this are a lack of experience with Indian companies, low levels of trust and knowledge of the skills of the Indian software industry, language barriers and cultural differences. However, since the cost pressure in the industry is growing steadily, a strategic outsourcing decision to India is definitely worthwhile. One possibility of outsourcing is based on the encapsulation principle, i. H. An international management consultancy with German consultants is in direct contact with the customer, but 90 percent of the service is provided by Indian experts and developers. The other variant is the consulting principle. The customer is in direct contact with an Indian software company. (6)

According to managing director Georg Kofler, the pay-TV broadcaster Premiere is planning a strategic outsourcing decision. In the technical development and also in the program area it is to be outsourced in the future. (10)

For cost reasons, the Bayerische Landesbank and the Landesbank Hessen-Thüringen have outsourced their securities business. The securities business is handled jointly by the newly founded LB Transaktionsservice GmbH. It is hoped that this will enable economies of scale and synergies to be achieved. (11)


Further reading:

(1.) Growing importance of strategic outsourcing, Frankfurter Allgemeine Zeitung, August 12, 2002, p. 17
from Frankfurter Allgemeine Zeitung, August 12, 2002, No. 185, p. 17

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F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Management at a Glance Department: Economy

Growing importance of strategic outsourcing


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(2.) Outsource entire business processes, Frankfurter Allgemeine Zeitung, August 12, 2002, p. 17
from Frankfurter Allgemeine Zeitung, August 12, 2002, No. 185, p. 17

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F.A.Z. Frankfurter Allgemeine Zeitung / Heading: Management at a Glance Department: Economy

Outsource entire business processes


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(3.) Malhotra, Priya, Report Say’s 40% of Outsourcers Unhappy, American Banker, 08/20/2002, p. 10
from Frankfurter Allgemeine Zeitung, August 12, 2002, No. 185, p. 17

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Malhotra, Priya, Report Say’s 40% of Outsourcers Unhappy, American Banker, 08/20/2002, p. 10


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(4.) Hase, Michael, When IT Wraps Up, Advertise & amp; sell, 07/26/2002, p. 28
from advertise & amp; sale No. 30 from 07/26/2002 page 028

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(5.) Müller, Jürgen, POS service providers cling to fixed budgets, sales outsourcing: The industry owes the market more transparency New ideas are in short supply, Lebensmittelzeitung, 02.08.2002, p. 34
from Lebensmittel Zeitung 31 of 02.08.2002 page 034

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Food newspaper / service marketing

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(6.) IT outsourcing / chances of outsourcing to India remain unused, German companies develop expensive software at home, Computerwoche, 07/26/2002, p. 40
from Lebensmittel Zeitung 31 of 02.08.2002 page 034

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IT outsourcing / chances of outsourcing to India remain unused, German companies develop expensive software at home, Computerwoche, 07/26/2002, p. 40


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(7.) IT outsourcing / drum check who binds externally, service provider with reservation, Computerwoche, July 26th, 2002, p. 37
from Lebensmittel Zeitung 31 of 02.08.2002 page 034

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IT outsourcing / drum check who binds themselves externally, service provider with reservation, Computerwoche, 07/26/2002, p. 37


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(8.) Cost pressure is forcing financial institutions to outsource processes, banks are rediscovering IT outsourcing, Computerwoche, 07/26/2002, p. 34
from Lebensmittel Zeitung 31 of 02.08.2002 page 034

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Cost pressure is forcing financial institutions to outsource processes, banks are rediscovering IT outsourcing, Computerwoche, 07/26/2002, p. 34


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(9.) Outsourcing needs to be learned, The dangers of outsourcing projects, Computerwoche, 07/12/2002, p. 34
from Lebensmittel Zeitung 31 of 02.08.2002 page 034

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Outsourcing needs to be learned, The dangers of outsourcing projects, Computerwoche, 07/12/2002, p. 34


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(10.) Klaus, Kathrin, Premiere sets new sales impulses, more commissions for trade and cooperation with property management companies, WirtschaftsBlatt, 07/30/2002, p. A15
from WirtschaftsBlatt, July 30, 2002, No. 1674, p. A15

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WirtschaftsBlatt / COMPANIES AND MARKETS

Premiere sets new sales impulses More commissions for trade and cooperation with property management companies


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(11.) Landesbanken outsource securities business, outsourcing is supposed to reduce costs. Computerwoche, 23.08.2002, p. 31
from WirtschaftsBlatt, July 30, 2002, No. 1674, p. A15

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Landesbanken are outsourcing securities business, outsourcing is intended to reduce costs. Computerwoche, 23.08.2002, p. 31


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Author GENIOS WirtschaftsWissen: M.Sydow
Source: GENIOS WirtschaftsWissen No. 10/2002 from October 16, 2002
Document number: c_strategy_20021016

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