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By Theresa Avagliano
It's like leading with your left, and then landing the knockout punch with your right.
Executives at large companies explore the idea of outsourcing based on early-stage, cost-cutting analysis, but the real driver -- the one that packs a punch - is most often strategic not tactical.
Officials at Nikon Inc., for example, welcomed the cost savings produced by outsourcing the development and operation of a non-traditional distribution channel to UPS Supply Chain Solutions. But ultimately, Nikon's focus was to speed new products to market faster.
Company executives found that the channels used for their film-based products couldn't keep pace with a new wave of pixel-loving customers who were hungry for the latest digital camera technology. Rather than spend resources on developing a new way to beat competitors in a crowded market, they created a new supply chain to meet the needs of the digerati.
For officials at publishing power Primedia Inc., cost cutting is always "one of the three top reasons to consider outsourcing." But Debra Robinson, senior vice president and CIO of the company's Consumer Magazine & Media Group, asserts that her latest outsourcing deal with Acxiom Corp. was used to jump start the IT integration process after 10 years of acquiring new magazines increased the unit's portfolio to 120. Yet Robinson still proudly reports that Primedia shaved off between 20% and 25% of its data center bill via outsourcing.
Indeed, according to the Sixth Annual Outsourcing Index, which polled over 640 outsourcing buyers from large companies, 64% of the executives concede that reducing and controlling operating costs is their number one reason to outsource. Meanwhile, 67% of those managers voted "price" as the most important criteria in selecting a vendor.
The Index defines large companies as having more than 5,000 employees. About 500 of the respondents are from the "largest" company category, denoting that they employ over 10,000, and generate at least $2.5 billion in revenues annually.
Bharat Desai, chairman and CEO of outsourcing vendor Syntel Inc. isn't surprised at the large number of large companies outsourcing these days. He explains that as companies grow, management becomes more process oriented and focused on developing, and duplicating, the company's core successes. "It's difficult to be the best in more than one thing, he adds.
Furthermore, regardless of company size, Desai says that all economic engines are driven by the same factors: cost, quality, scalability and speed. "Cost is not everything, especially in large companies, but buyers, in general, always look for higher quality at lower prices," reckons Desai.
To be sure, while fewer and fewer companies in general are citing cost-savings as their primary reason for outsourcing, large companies are still clinging to this motivation. According to the Index, 66% of the largest companies singled out saving money as their top reason for outsourcing, compared with 55% of all of the companies that participated in the Index.
Still, executives emphasize that the end game is much broader. "Every buyer likes to think they got a good deal, it's human nature," muses Bob Pryor, president of outsourcing services at Cap
Gemini Ernst & Young. But in the end, says the consultant, cost-cutting becomes secondary.
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