OUTSOURCING AS A STRATEGY A. Katz P.O.Box 7636, Haifa 31076

ABSTRACT Outsourcing was originally considered as sub-contracting the activities that were done (or could be done) "in house", for various reasons. The synthesis of growing competition, continuously changing business and purchasing strategies, growing demand for operation optimization and diminishing international trade borders, lead to the second phase of this process. There is a growing shift to local and global (known as "Offshore") outsourcing, backed by multinational groups and buy-back regulations, and thus outsourcing is not merely means for reducing costs, but an ongoing process in the organization’s operationability. The competitive and challenging business constellation push yet further. The need to improve total competence and to lower risks results in instrumental focusing on the organization’s qualities and competencies, and outsourcing as much as possible of other activities. This leads to a growing dependency on qualified and professional contractors, resulting in raising uncertainties and, consequently, emphasizing the need for risk management and control, while strengthening the multi - discipline management abilities. As such, the source of the competitive advantage lays more on the accumulated core competencies formed by all joint partners than on discrete capabilities of each organization by itself. It can be claimed that outsourcing is changing the world of business and the business of management. Thus, outsourcing is a strategic management issue. Under this assumption the business should allocate the best people available to run this unique operation. Building a business to success and last under this perspective is depenedent upon the sound base of appropriate strategy, focused approach and able management of outsourcing. In my article I wish to discuss this approach in view of the strategic decision scope, long range aspects and leverage optimization, pinpointing the key factors and practical considerations.

Keywords: Outsourcing

1. INTRODUCTION Outsourcing was traditionally considered as an optimized procurement process – purchasing complete work-shares (as large as possible from the financial benefits point of view), providing the prime customer with all the benefits:

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Focusing on Core Business.

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Allocating work-shares to experts.

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Limiting costs in issues which are not unique.

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Lowering unneeded overhead.

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Improving schedule and reducing prices, due to competition.

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Routing work under Human Resources constraints and company needs.

Probing into the outsourcing process and all required needs for success leads to a different conclusion: Outsourcing cannot be viewed merely as means to reduce costs, but as an ongoing process in the organization’s concept for excellence. It derives a focused perspective on the organization’s qualities and core competencies, shifts decisions to evaluate potential partners and competition strengths, and questions the benefits and capabilities of successful and focused partners and partnerships. Therefore outsourcing should be regarded as a powerful tool for competitiveness as it involves a growing consideration in long range attitudes – or in other words, a strategical business approach. Careful analysis of the process and preparations required towards executing large scale or comprehensive outsourcing activity involves complete system overview and strategic issues research, and guides to the conclusion that outsourcing is changing the world of business and the business of management. Outsourcing is practically a business concept and organizational strategy.

2. THE OUTSOURCING CONCEPT AS A STRATEGY The strategic understanding of a true outsourcing phase presents a changing company – focused on approaching an alliance with other companies. The practical concept reflects the enhancing of competitiveness by achieving higher return on assets through less work and capital commitment, improving time-to–market and increasing the ability to adjust quickly to a changing environment through partnering with other entities while reducing obligations to in-house resources. This could be achieved through utilizing core business qualities and competence of each of the companies in the alliance to leverage internal resources and capabilities with quality sources, as effectively and efficiently as possible. Thus, focusing on doing the "right" activity (namely, the specific expertise core business) is by far beneficial to doing any general or non-expert activity (even if better), or in other words: each partner

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should focus on its best cost effective qualities, considering all will join resources and efforts together to the final required products. This process has instrumental importance on the related project, on each of the companies involved and especially on the prime, depending upon the significance of the activities and work-shares involved. Main issues that may be considered, influenced or amended in-house, due to the ongoing outsourcing process: •

Focusing the company and defining the Core Business.

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Re-defining competition for in-house activities.

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Analyzing competition and options for strategic cooperation.

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Considering partnerships and cooperations in responsibility.

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Emphasizing outsourcing managerial qualities.

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Re-evaluating Human Resource management and utilization.

Above all, a major issue would be the embedding of a high quality preparation phase for the prime company. This phase, which requires a noticeable attention on behalf of top management and a considerable time period, will refer (at least) to the following issues: •

In-house company-wide presentation and orientation of the outsourcing process.

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Analysis of organizational objectives and outsourcing goals.

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Developing and practicing methodology for selecting outsourced tasks.

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Initiating an expert approach for selection of partners (outsourcing subcontractors) for the long run.

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Structuring an organizational mechanism for decisions regarding outsourcing.

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Defining Success criteria and audit bench marks.

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Defining (per project) relations with partners and sub-contractors positioning.

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Acquiring in-house suitable risk management and assessment qualities.

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Defining the control instruments - regulations and procedures to conduct a close and efficient follow up.

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Define, select and tutor the suitable personnel for the job.

Strategic management of outsourcing is perhaps the most powerful tool in corporate management. The quality of the competitive advantage is constrained by the managerial abilities, perspective and understanding the complexity of this bond, which is probably the key factor for success. To enhance, the key to success is within the forming of the practical alliance and the process of co-activities, and depends on the mix of the enterprise's core 3

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competencies, qualities, activities and processes, and not on discrete capabilities. In accepting this approach, one recognizes that sources of competitive advantage can exist outside the enterprise [2], within its relationships with other firms. Once the process is initialized, the single most significant issue is the sensitive and proactive management of the activities, bound together with close follow-up and control of operations. The analysis, comprehensive and awareness qualities of the (prime and leading partner) outsourcing management team combined with the option for immediate response and involvement of top management are crucial for the proper proceeding of the project towards success. Upon accepting this approach of strategically managing outsourced activities the rewarding benefits are: • Higher value, flexibility, and more integrated services than internal sources can offer. • Improved capacities to stay current by interacting with the best available sources. An alliance can carry on better than any single company (conditioned upon able project management), so for inter-disciplinary comprehensive programs the combination is by far preferable: Companies cannot afford all risks for every desired initiative, whereas outsourced partners and suppliers can divide risks; A single company may be unable to attract the best people to work in-house, as individuals tend to seek out the best employers for their talents to be most recognized and rewarded. In said alliance concept, all talents are practically combined within the partnership; Companies can get to results faster through outsourcing and avoiding time delays in hiring, concept and infrastructure development, and bypass internal resistance to new ideas; Outsourcing activities to small companies usually results in flexible, fast-reacting, open and objective approach to new ideas in comparison to large companies, resulting in fewer conceptual and historical barriers to solutions.

3. PRACTICAL CONSIDERATIONS An enterprise aiming to establish a consistent strategic basis for outsourcing has to undertake a thorough review of its functions and operations in order to define its true-core competencies. It should be those activities in which the firm maintains "best-in-world" competitive capabilities and provides a flexible platform for the future. Doing "more of the same" and not focusing on real core business can ensure merely time limited competitive ability that would later lead to mediocrity, and not being best at anything.

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As outsourcing shifts from the traditional procurement process to a true strategic approach of acquiring value-creating and added activities, management should realize the change and adapt its concept and the whole enterprise attitude of the new era of management, with its specific new significances. Outsourcing of large scale activities (up to where the outsourced activities are being the majority of the project) requires a different managerial attitude, a more demanding leadership environment and new, specific skills, mostly in the system design, integration and management. Furthermore, companies have to plan new forms of organization in order to assure that outsourcing process advances as intended, where the initial (but not sufficient) change should be the related organizational culture intention and attention, embedding the idea of large scale outsourcing. Last, but of the most crucial importance, is the outsourcing management team. When relating to "organizational leadership", the suitability and capabilities of individuals leading the activity are instrumental for the outsourcing process success. "For both top executives and front-line managers, deciding which activities to be contracted out requires an understanding of the firm's strategic imperatives and how to achieve them." [3] The "organizational leadership" of outsourcing to manage risks and gain the full potentials of this process’ abilities has to develop and implement crucial controls that include: Ensuring the suitability and likeliness of the outsourcer and the outsourcee abilities and mutual goals; Developing operational data systems that collect, evaluate, and recommend the best possible suppliers; Highest quality of professional support (technical, procurement, contract management, operation control and leadership), required for the initializing and follow-up of the process, and to the aid of the outsourcing management. Thus, outsourcing is a strategic management and not an operational issue.

4. CONCLUSIONS The "global Village" approach is proceeding and international borders are diminishing due to economical and business considerations, which are of fast growing significance. This globalization process results in an ever growing shift to global outsourcing. To survive and remain competitive in this highly risky, dynamic, demanding and ever changing world, it is mandatory to completely understand, preview and evaluate the process in order to operate successfully in this challenging environment.

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Within a relatively short period alliance cooperation lead by outsourcing will be the obligatory instrumental means for competence and success. Acknowledging and utilizing to the utmost the advantages of inter-company cooperation and collaboration for activities and business processes that are non-core will be unavoidable for survivability. In this business environment companies are looking to outsource, not merely for cost reduction but especially to acquire value–added abilities and activities to help them achieve better positioning, flexibility and competitiveness enhancement. This is referred by Quinn [4] - "Strategically managing knowledge, innovating, and outsourcing will be among the greatest and most rewarding challenges of the new era." The appropriate strategy, concise approach and oriented management of outsourcing, identified by many as one of the most important management ideas and practices, is the key to survive and success. Probably the best quote to end this article with would be from [5] – "Strategic management of outsourcing is perhaps the most powerful tool in [corporate] management, and outsourcing of innovation is its frontier"

BIBLIOGRAPHY (1) Richard C. Insigna and Michael J. Werle, Linking outsourcing to business strategy, Academy of management executive, 2000, Vol, 14, No. 4, pp. 58-70 (2) Michael Useem, Leading Laterally in Company Outsourcing, Sloan Management Review, Winter, 2000 (3) James Brian Quinn, Strategic outsourcing: leveraging knowledge capabilities, Sloan Management Review, Summer, 1999 (4) James Brian Quinn, Outsourcing Innovation: The Engine of Growth, Sloan Management Review, Summer, 2000

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