History has shown several times and established the fact that the underlying factor for outsourcing is to lower cost and provide better value of the services and goods to the buyers to what they can achieve themselves. There can be reasons of outsourcing done by organizations at a higher cost than what they themselves can achieve, however this will always remain a temporary form of outsourcing because the buyer will eventually either develop the skill in-house or find a better source which can give him cost advantage and ...
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History has shown several times and established the fact that the underlying factor for outsourcing is to lower cost and provide better value of the services and goods to the buyers to what they can achieve themselves. There can be reasons of outsourcing done by organizations at a higher cost than what they themselves can achieve, however this will always remain a temporary form of outsourcing because the buyer will eventually either develop the skill in-house or find a better source which can give him cost advantage and higher value. Any service which was cost effective earlier but loses its cost advantage due to whatever reason gives way to another form of service which can do this task at a lower overall cost and higher value to the end consumer, thereby re-establishing the low cost and high value basis of outsourcing. More than two decades back, when outsourcing in manufacturing was highly established, it was difficult to understand how we could outsource anything that cannot be seen, checked and counted. Manufacturing was all about the physical piece being counted and checked and was very straightforward. Once I visited a vendor myself in Chennai who was making pins and brushes for the trucks my company was producing. These items were small and insignificant in nature as compared to the overall cost of the vehicle. The same component when imported was costing almost double to the cost of local manufacture by this vendor. In my discussion with the vendor, I figured out that the vendor was saving almost fifty percent of the cost he was billing us. I came back to my manager and asked him the reason for this outsourcing when we could save yet another fifty percent of the cost. He replied back that it was value sourcing and not outsourcing. My company would end up spending more on the manufacture of the component as much more higher value added work needs focus than these small ones. He also pointed out that the vendor I met did not have such a large complex, so many high paid managers nor such great office space too. These overheads which were not with the vendor helped him save this money for himself and even helped us to save money on the imported component. Since then, I always looked at outsourcing as value sourcing and questioned the validity of the outsourcing if it failed to generate the desired value. I moved from manufacturing to services and saw the outsourcing model between USA and Indian IT companies mature. Two decades back, it was only cost arbitrage that made this model work. Skills were very basic and engineers learned on the job. Over period of next two decades, the demand matured to higher skills and experience than just bodies. We clearly see that the paradigm of value have been shifting in IT outsourcing and the definition of value is no more just cost but an outcome which will help the customer provide better value to their end customer. We discovered that although claimed by several outsourcing companies, most of them still are struggling to change themselves into a true value source. Keith and I are working to get true value sourcing with the partners and helping this to generate an outcome, which will provide higher value of our goods and services to our end customer.
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