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Leveraging Outsourcing during Recession
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Abstract

Even in the favourable market situations, business leaders confront complex challenges – expansion plans, competitor moves, investor value creation, resource issues - and so more and so forth. However, it is in a looming economic crisis that a leader faces challenges much more crucial and critical to the health of the business such as scaling down costs, sustaining customer value, even ensuring that the business survives the downturn. How should business leaders address these challenges? Should they be apprehensive about the future? Or, should they attempt to leverage the recession as an opportunity that helps them emerge stronger once the economy recovers? Should they position themselves to both weather the storm and take advantage of recovery?”

This paper examines how organizations can leverage outsourcing to their advantage in the current economic uncertainty. It provides a framework to understand how partnering with the right service provider can help you not just outlast the recession, but benefit from it.
Growth during a Recession – The Opportunity beyond Cost Reduction

Many organizations have realized that the period of economic crisis has given an opportunity for business leaders to improve their business models and develop strategies that are more rational and better aligned with market realities. The uncertainties created by Y2K and the dotcom crisis during the last economic slowdown in 2001-02 were instrumental in pushing forward the growth of the IT services industry. Apple, Amazon and Wal-Mart are frequently cited examples of companies that continued investing through the downturn to come out stronger while other competitors were slow in responding to the resurgent market.

It has become readily apparent to all firms with substantial IT budgets that in order to remain competitive, outsourcing is required. In these trying times, outsourcing is proving to be a great enabler. Adopting a strategic initiative to outsourcing and lessons from past experiences can go a long way in dealing with the challenges that recession brings.

While the initial goals of outsourcing were cost and capabilities. Down the line two more were discovered – enhance competitiveness and drive transformational changes. The emphasis has moved beyond ‘stretching the dollar’ to ‘creating new dollars’ by unlocking more value and enhancing revenue.


4C Framework for Outsourcing

The 4C Sourcing Framework uses Costs, Capabilities, Competitiveness and Change as the basis for defining and deploying an outsourcing strategy to deal with recession.

Costs

Cost cutting is the first competency in dealing with an uncertain economic environment. Outsourcing is a proven approach for companies to reduce and manage costs in IT or specific business processes. Starting with removing redundancies in processes and assets, and leading to the identification of opportunities for shared costs and resources across the organization, different parts of the portfolio can be clustered and sourced for operational efficiencies that companies desire in a recession.

Capabilities

An effective outsourcing strategy in a recession focuses on sustaining and enhancing the IT and operational capabilities of an organization. The maxim to ‘hire where the best talent is available and execute where it is most economical’, has never been more apt than in an Outsourcing context.

Competiveness

A strong handle on costs and the assurance that an Organization can sustain its capability throughout the economic crisis provides it with the ability to focus on future competiveness. A focus on competitiveness and strong understanding of core and non-core for innovation and creativity enables Organizations to adopt outcome-based sourcing models.

Change

During the recession, it is important that Organizations do not lose sight of change drivers – technology refresh cycles, business cycles, technology enabled business models. The organizations should be constantly monitoring these disruptive forces and leverage them in a downturn to provide significant first-mover advantage.

Deploying the 4C Framework

Past experience shows that outsourcing has been aggressively pursued by companies during economic downturns. However, the extent of benefits is dependent on Organizational readiness and maturity. Companies looking for ‘quick fix’ solutions might need to modify their approach and take a broader and long term view to their outsourcing strategies.

The 4C framework has been applied with Damco to deploy an outsourcing strategy based on standardized processes, leveraging proven service provider capabilities and low operational complexities. Importantly, metrics, risk reward mechanisms and service level agreements are based on cost, capability, competiveness and change. The coming together of enterprise needs and ever-increasing service provider capabilities could lead to a new wave in the evolution of outsourcing. Outsourcing presents an excellent opportunity for organizations to not just cut costs in the immediate future, but create a lean organization that will be even more profitable once the economy recovers and deliver enhanced customer value.

Comments Listing
Posted: 01/02/2011 15:11:40

A really Good article.
organizations should focus on all the four aspects which have been mentioned in this article. Outsourcing can be a very good option for the organizations during it's downturn.


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