Outsourcing – The Dilemma

Outsourcing, whether it is services or manufacturing is a hot & emotional topic more so with the current economic situation. After considerable debates and wrangling, majority understands that this concept is going to stay for some time. The only issue with this concept is in what form Outsourcing is going to stay. To understand this in detail, let me key in my take on Outsourcing, the current scenario and the future play.

In the formative years outsourcing was based on the fact that products and services can be manufactured /delivered from any location by leveraging on abundant low cost man power & utilizing standard process. Cost arbitrage was the only factor in this scenario. The organizations who jumped on this realized huge benefits and others were left far behind. WalMart is a good case in point for the success along with some of the major Indian IT service providers. This has also helped to increase the global flow of trade where a whole new section of consumer group was created who benefited from this outsourced business. This I would rather call as Outsourcing 1.0 where most of the benefits resulted in lower cost of operations and hence higher profit for organizations and reasonable prices to consumers.

Though Outsourcing 1.0 has resulted in paring down the cost of services / products, the change of life style associated with the new reality and the competition to get resources has reduced the key decision factor of cost arbitrage provided by most of the Outsourced organizations based in different geographies. The major Outsourcers were left with some hard choices to either reduce the cost or move up the value chain and demand more dollars on services. Most of the Outsources have gone for the first option to show / retain the same growth & profit margin and deployed fresh hands that inurn has compromised on the product/delivery standards to a certain extent.

The current scenario demands business transformation along with partnership approach is the key factor for Outsourcing. In the next few blogs I shall share some of my thoughts on approaches that I feel will be a factor that shall change outsourcing in the long run.