From "Good" to "Great": A Framework for Optimizing Your Outsourcing Strategy

Outsourcing has become a vital strategy for businesses seeking to streamline operations, access specialized skills, and focus on core competencies. The global outsourcing industry remains strong this 2024 with a market value surpassing $ 92.5 billion. In the US alone, it is estimated that 66% of businesses have outsourced at least one department in the past year which highlights its prevalence in business strategies.

Source from: Deloitte Global Outsourcing Survey 2022

This highlights the need for a more strategic approach to outsourcing, one that goes beyond simply finding the cheapest option. This article will delve into the secrets to transforming your outsourcing strategy from "good" to "great," unlocking its true potential for business growth and success.

The "Good to Great" Framework

Let's first define what constitutes "good" outsourcing. Typically, this involves engaging external providers to handle non-core functions, often driven by cost reduction. While this can be effective, it often lacks the strategic depth and long-term vision needed for true success.

"Great" outsourcing, on the other hand, transcends mere cost efficiency. It's about aligning outsourcing with your overall business strategy, optimizing performance, and building lasting partnerships. It involves:

• Strategic Alignment: Integrating outsourcing into your long-term goals and objectives, ensuring it contributes to your overall business success. This means clearly defining how outsourcing fits into your overall business plan and how it will help you achieve your strategic objectives.

• Performance Optimization: Establishing clear KPIs, monitoring performance regularly, and implementing continuous improvement measures. This involves setting measurable goals, tracking progress, and making adjustments as needed to ensure that your outsourcing strategy is delivering the desired results.

• Long-Term Partnerships: Cultivating strong relationships with your outsourcing partners, fostering trust, and prioritizing mutual growth. This means building a collaborative relationship with your outsourcing partner, fostering open communication, and working together to achieve shared goals.

Here are some examples of how successful companies have leveraged outsourcing to tap into specialized expertise and global talent pools, ultimately strengthening their competitive edge:

• Toyota: It is a global automotive leader, adopted a nearshore manufacturing strategy by shifting production to Thailand. This move capitalized on the growing trend of nearshore manufacturing in the automotive industry, allowing Toyota to leverage lower labor costs, access a skilled workforce, and reduce transportation costs compared to more distant manufacturing hubs.




• Apple: A technology giant known for its sleek products, revolutionized its manufacturing process by outsourcing production to China. This strategic move enabled Apple to access a vast and cost-effective manufacturing base, resulting in significant cost savings and improved product quality. By partnering with Chinese manufacturers, Apple could leverage their expertise in large-scale production and benefit from economies of scale.




• Procter & Gamble: This is a consumer goods giant, significantly improved its overall efficiency by outsourcing its IT services. This strategic decision allowed P&G to focus on its core business functions, such as product development and marketing, while relying on specialized IT providers to manage complex infrastructure and IT operations. This freed up internal resources and allowed P&G to invest in areas that directly contributed to its core business goals.




• UBS: A global financial institution, partnered with an outsourcing firm to redefine their mobile banking experience. This collaboration allowed UBS to leverage the outsourcing firm's expertise in digital experience design and development, resulting in a more user-friendly and intuitive mobile banking platform. This strategic partnership enabled UBS to enhance its customer experience, improve user engagement, and stay competitive in the evolving digital banking landscape

Key Considerations for Choosing the Right Partner

While cost is a crucial factor, it shouldn't be the sole determining factor. Here are some key considerations for choosing the right outsourcing partner:

• Cultural Fit: Ensure that the partner's values and culture align with your own, fostering a collaborative and productive working relationship. This means finding a partner that shares your values and has a similar work ethic, ensuring a smooth and harmonious working relationship.

• Expertise: Look for partners with proven expertise in your specific industry or function, ensuring they have the skills and knowledge to deliver high-quality results. This means selecting partners who have a deep understanding of your industry and the specific functions you are outsourcing, ensuring they can deliver high-quality results that meet your standards.

• Communication Skills: Effective communication is vital for successful outsourcing. Choose a partner with strong communication skills, clear processes, and a commitment to transparency. This means selecting partners who are proactive in communication, have established processes for information sharing, and are transparent about their operations.

• Commitment to Quality: Insist on a partner that shares your commitment to quality and excellence, ensuring they meet your standards and deliver exceptional results. This means finding partners who are dedicated to delivering high-quality work, have a strong track record of meeting deadlines, and are committed to continuous improvement.

Netflix, the streaming giant, faced significant challenges with its initial software development outsourcing strategy. They focused primarily on cost reduction, leading to several issues:

• Upscaling Streaming Services: In its early days, Netflix faced a major challenge: scaling its streaming service to meet rapidly growing demand. Their own data centers and servers, while initially sufficient, couldn't handle the increasing traffic and the need for constant expansion. This led to issues with reliability, scalability, and cost, putting a strain on the company's ability to deliver a smooth and affordable streaming experience.




• Quality Concerns: The outsourced development team struggled to meet Netflix's high standards for user experience and performance. This resulted in frequent bugs, slow loading times, and a subpar user experience. The outsourced team lacked the deep understanding of Netflix's complex streaming technology and the nuances of delivering a seamless user experience.




• Communication Barriers: Communication between Netflix's internal teams and the outsourcing partner was often inefficient, leading to delays and misunderstandings. The teams struggled to effectively communicate technical requirements, project updates, and bug fixes, leading to frustration and delays.




• Lack of Innovation: The outsourcing partner lacked the creative vision and technical expertise to keep pace with Netflix's rapid innovation and growth. They were unable to contribute to the development of new features and functionalities that would enhance the user experience and drive user engagement. The lack of shared vision and understanding of Netflix's long-term goals hindered their ability to contribute to the company's innovation pipeline.




• Security Concerns: Netflix's platform handles sensitive user data, and they needed a partner that could meet their stringent security standards. The initial outsourcing partner lacked the necessary security expertise and infrastructure, raising concerns about data breaches and security vulnerabilities.

Netflix realized they needed a more strategic approach to outsourcing. They shifted their focus to finding a partner that not only understood their technical requirements but also shared their commitment to innovation and user experience. They selected a partner with a strong track record in developing high-performance streaming platforms and a culture that aligned with Netflix's values.

This strategic decision resulted in:

• Outsourced Amazon Services: To address its infrastructure challenges, Netflix partnered with Amazon Web Services (AWS) in 2009. AWS provides comprehensive cloud computing solutions, including computing power, storage, and networking services. By outsourcing its entire IT infrastructure to AWS, Netflix could concentrate on its core mission of content creation and delivery. This strategic partnership enabled Netflix to leverage AWS's scalable and reliable infrastructure, resulting in a high-quality streaming experience for customers while significantly reducing operational costs compared to managing its own infrastructure.




• Improved Software Quality: The new partner delivered high-quality code, resulting in a smoother user experience and fewer technical issues.




• Enhanced Communication: Open communication channels and collaborative workflows were established, leading to faster development cycles and fewer misunderstandings.




• Increased Innovation: The partner's expertise and shared vision allowed them to contribute to Netflix's innovation pipeline, developing new features and functionalities that enhanced the user experience.




• Stronger Security: The new partner implemented robust security measures, ensuring the protection of Netflix's user data and meeting their stringent security standards.

Understanding the Risks of Outsourcing

While outsourcing can offer significant benefits, it also comes with inherent risks. Failing to address these risks can lead to costly mistakes and even business failure. Here are some key risks to consider:

• Loss of Control: Outsourcing can lead to a loss of control over critical business processes and data. This can be particularly challenging if you don't have clear contracts, performance metrics, and communication protocols in place.




• Quality Issues: Outsourcing to a partner that lacks the necessary expertise or commitment to quality can result in subpar products or services, damaging your brand reputation and customer satisfaction.




• Security Breaches: Outsourcing to a partner with inadequate security measures can expose your sensitive data to breaches and cyberattacks, leading to financial losses, reputational damage, and legal liabilities.




• Communication Breakdowns: Poor communication between your internal teams and your outsourcing partner can lead to misunderstandings, delays, and project failures.




• Cultural Misalignment: Outsourcing to a partner with a different culture or values can create communication barriers, hinder collaboration, and impact overall performance.

Examples of Outsourcing Failures

• The Case of Kodak: They were once a leader in the photography industry, outsourced its manufacturing operations to lower-cost providers. However, apart from the seeming inability to innovate in the era of digital photography, they failed to properly manage the outsourcing process, leading to quality issues and production delays. This contributed to Kodak's decline and eventual bankruptcy.




• The Case of HP: A technology giant, outsourced its customer service operations to a call center in India. However, they failed to adequately address cultural differences and communication barriers. This resulted in customer dissatisfaction and a decline in brand reputation.

Secrets to Optimizing Performance

Once you've chosen the right partner, it's crucial to optimize performance and ensure your outsourcing strategy delivers the desired outcomes. Here are some key secrets:

• Clear Goals & Metrics: Define clear goals for your outsourcing initiatives and establish measurable KPIs to track progress. This will help you identify areas for improvement and ensure that your outsourcing strategy is aligned with your overall business objectives.




• Effective Communication & Collaboration: Establish clear communication channels, regular meetings, and escalation procedures to ensure seamless collaboration with your outsourcing partner. This will help you stay informed, address issues promptly, and maintain a strong working relationship.




• Continuous Improvement: Foster a culture of continuous improvement by regularly reviewing performance, seeking feedback, and implementing process optimizations. This will help you refine your outsourcing strategy, enhance efficiency, and achieve better results over time.

Amazon, the e-commerce giant, implemented a robust performance optimization strategy for its customer service outsourcing. They established clear KPIs, conducted regular performance reviews, and implemented a feedback loop to identify areas for improvement. This resulted in reduced customer wait times, improved first-call resolution rates, and increased customer satisfaction.

Transforming your outsourcing strategy from good to great is a journey that requires strategic planning, careful partner selection, and a commitment to continuous improvement. By embracing the secrets revealed in this article, you can unlock the true potential of outsourcing, driving business growth, enhancing customer experience, and achieving lasting success.

Transcosmos Asia Philippines is your trusted partner for transforming your outsourcing strategy. With our deep expertise in BPO, CX, and digital experience, we can help you achieve your business goals through:

• Strategic Outsourcing Solutions: We offer tailored outsourcing solutions that align with your specific business needs and objectives.




• Exceptional Customer Experience: We are committed to delivering exceptional customer experiences that drive loyalty and satisfaction.




• Digital Transformation Expertise: We leverage our digital transformation expertise to help you optimize your processes, enhance efficiency, and stay ahead of the curve.