Source - Frank J. Casale, Chairman & CEO of The Outsourcing Institute

Outsourcing today is in its second wave of growth. In order to understand this stage, we need to turn for a moment to its inception. As recently as five years ago, outsourcing was considered the last resort of large companies that were in financial difficulty. It was generally a strategy that transferred back-room processes to a second party in order to achieve cost efficiency, and usually came under the heading of "procurement". The sole driver was overhead reduction and it ordinarily resulted in a cutback in the workforce.

The Tide Changed

Then an interesting phenomenon took place. Companies discovered that by shifting from a vertically integrated business model in which the company owned all operations to a virtual model in which some of the company's resources resided outside the corporate boundaries, they actually gained a distinct competitive advantage in the marketplace. What had begun as a tactic for reducing overhead turned into an expedient force for driving organizational change and improving business processes. In fact, outsourcing has become "changeware," offering businesses innovative ways to best transform themselves, nimbly enter or create new markets, increase flexibility and best practices, and strengthen the virtual infrastructure.

Today, outsourcing is recognized as one of the fastest-growing management tools of the decade. It allows corporations to focus on their core competencies, shift peripheral operations outside the organization, and, at times, exceed their previous standard for excellence.

Outsourcing, however, is still in its adolescence and, as such, is an evolving strategy. Client companies are learning to leverage their outsourcing relationships in order to provide better customer service. Service suppliers are becoming more process-oriented and are learning to think horizontally by looking at their service offerings across functions rather than as vertical solutions.

In the months and years ahead, the role of outsourcing will become even more critical and will be recognized as an important strategy for increasing market share, stock valuation, and customer satisfaction. We will see even more complex relationships emerge between service providers and customers, and will increasingly witness the teaming of service competitors in order to provide maximum solutions to client companies.