Take good care of your outsourcing relationship and make it successful !
In the search for organisational competitiveness, outsourcing has become a widespread management strategy. As outsourcing has evolved in a more strategic way, cooperation, collaboration and co-development are required in order to achieve a mutual goal. Therefore, a close and long-term relationship is needed to achieve a sustainable competitive advantage. It has been recognised that management of an outsourcing relationship is essential to ensure long-term success, but often organisations lack the skills and expertise to do this. Lego and Boeing are two famous examples.
The Danish company Lego outsourced most of its manufacturing activity in 2006 to Flextronics and brought it back in-house in 2008. The specificity of the machines prevented significant economies of scale from being achieved. Coordination and control of the production were more complicated than in-house, and was exacerbated by divergences and misalignments between the two companies. After the terrorist attacks of 9/11, Boeing decided to outsource most of its manufacturing activities to over 50 suppliers. In 2009, the 787 Dreamliner’s production was two years behind schedule and Boeing decided to bring back in-house their major production lines. The main reason was that Boeing lost control over its multiple suppliers.
Outsourcing, when performed well, can result in the client organisation receiving benefits that they would have otherwise been unable to achieve by performing the activity in-house. However, these benefits are not guaranteed, and there are furthermore large risks involved if an outsourcing arrangement is not successful. Therefore, it is important to determine the factors that contribute to ensuring a positive outcome and not only in the short term. Our study has investigated a successful multiple activity outsourcing of a multinational pharmaceutical company. Eighteen key success factors have been identified for an organisation to retain a good working relationship with its outsourcing service provider. As most of the previous researches were focused on a single or only a few of these factors, there is the danger that the overall strategic intent of outsourcing would be lost. Our 18Cs model ensures a holistic and sustainable management of the outsourcing process, which has not been previously described in the literature.
A long-term relationship between client and supplier creates an atmosphere of trust and commitment, which promotes performance. However long-term arrangements are difficult to implement and maintain. An important message of this research is that every company needs to give serious and continuous attention to outsourcing arrangements. The developed 18Cs outsourcing model has substantial managerial implications. Some outsourcing processes are doomed to fail even before the relationship has actually started. The implementation of the 18Cs outsourcing model is time-consuming, costly and requires changes in the organisation.
The studied company has set up a department to conduct, control, learn and capitalise expertise from each outsourcing experience. These in-house talents have been more valuable than outside consultants, because they understand better the company’s specific needs. Even when the outsourcing activities are fully operational and boundaries have dissolved, permanent teams working on both sides are needed to maintain and fortify the relationship. As the company becomes increasingly virtual, expertise about outsourcing and service provider management will be more and more crucial. Personal contacts and open communication must be established between both companies.
Article published on : outsourcemagazine.co.uk
Author : Alessio Ishizaka and Rebecca Blakiston