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Mar 10, 2009


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There seems to be a consensus on this blog that the term "outsourcing" no longer adequately describes the forces at work these days.

I was reminded of an introduction to outsourcing I wrote last year for a university audience -- it echoed David's key point (if in drier language): outsourcing is no longer a discrete activity but a pervasive, persistent approach to maximizing business results.

"Modern strategic management considers outsourcing the next logical step in the evolution of virtual supply chain integration, which revolutionized manufacturing in the 1980s. This model created efficiencies in production systems by breaking them down into discrete components. These components, in turn, allowed for greater specialization by niche firms such as contract manufacturers and order fulfillers. Thus, outsourcing is essentially a specific manifestation of various classical economic models governed by optimal allocation of capital and resources by firms, and of economic specialization in particular. Seen in these theoretical terms, outsourcing is synonymous with subcontracting work to a supplier who can provide a good or service more efficiently – a practice that certainly predates the globalized markets of today."

Although it takes determination and change
management to conduct processes outside
the corporate walls, the precedent was set
decades ago. Therefore, the concept isn’t as
radical as it may seem. Companies rarely build manufacturing plants in the United States or United Kingdom anymore.

Instead, China,Eastern Europe, India, the Philippines, South Korea, and Taiwan are the locations of choice.

By the same reasoning, why should companies
build data centers and general or administrative (G&A) factories - often called shared-services centers - in high-cost, onshore locations?

A fundamental shift is under way to migrate
transaction, technology, and administrative
processes offshore over the next decade.
Just as the physical supply chain moved
to best-shore locations in the 1980s, the
information supply chain, including IT and
software-application development and
maintenance, moved offshore in the 1990s.
Now it’s the turn of the administrative supply chain.

In the next wave which is already happening, many knowledge intensive
positions are likely to go offshore too.
These would include highly trained CPAs
and accountants.

It still is unbelievable that neither politics nor economics theories have evolved much since the fundamental changes induced by modern technologies. We live in a whole new world compared to our parents and yet we fail to understand that clasical capitalism is pretty much dead and we are witnessing the birth of a new theory based on a global logistics model. Whether this is good or bad, time will decide, for the time being we can only try to adapt.

It´s refreshing to read a does of realism, and this hits the mark. I believe we´re on the cusp of an era where companies and vendors will experiment far more freely to drive more value from outsourcing relationships. While cost-reduction is the driver, it´s the value being experienced by referenceable clients that is providing the differentiator.

A great article on the virtues of outsourcing and the value that it brings to businesses. The question is what to outsource and who to outsource to? My vote is for a Virtual Assistant; we have skills varying from bookkeeping to desktop publishing. As noted in the article - outsourcing is not for wimps but for those you want to bring value to their business! Get your perfect VA at VAnetworking.com; the following will help you in your search: http://www.vanetworking.com/articles/

This is a great piece - thanks for sharing. The current economy is proving a great opportunity for companies to move into F&A outsourcing engagements. Businesses can scale their operations to the needs of their customer demand, gain a tighter control over their cash flow, and drive strandardization into their processes that can give them tighter global control and access to their critical financial information. Didn't someone say "There's nothing like a good crisis?" Surely this is time for businesses to use this situation to make changes to their global business operations that bring them out of the dark ages?

Stephen Cohen

This is a great synopsis of outsourcing today - and very funny too! "A ratcheted-up version of finding the best resources" is the perfect desctiption of why firms move into "outsourcing" models today.

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