Outsourcing turns traditional business pyramid on its head

25 Mar

Control and cost are the two words that float consistently to the surface when the great stew over outsourcing is on the boil.

In a literature dense with opinion on outsourcing’s benefits and drawbacks, hard business heads and seasoned academics alike rarely chart a common line.

Let’s take some of the heat out of the subject with a down to earth examination of where it’s come from, what it means, and where it’s headed. 
By way of history and human endeavour, international industry and global capital movements are relatively recent phenomena. Their furthest origins lie in the aftermath of the Industrial Revolution, although I’d argue they also have a close attachment to the colonial expansionism of the late 17th and early 18th centuries. 

As old as humanity

But the concept of outsourcing—assigning tasks you couldn’t, didn’t or wouldn’t perform yourself to specialists beyond your family, village or community—has been with us since the dawn of humanity.
Outsourcing as a term, however, is almost contemporary. It derives from the phrase business processing outsourcing, credited to process analyst and outsourcing pioneer, Mark Hodges, in the United States in 1989.

Why outsourcing before insourcing?

Outsourcing is universally accepted as the practice of an organisation or business hiring an external and independent resource to carry out a function that was or would normally be performed by the organisation’s employees.

Led in what we call the first world by technological innovation, the pace of economic development has inverted the traditional business pyramid. 
Successful companies once held monopolies or near monopolies over the production and distribution of commodities and services, often based on an invention or innovation no competitor could match. Think Henry Ford and his any-colour-you-like-as-long-as-it’s-black model T Ford.

But just as widespread education democratised politics, technology de-monopolised the means, cost and scope of production and distribution of goods and services. 
Today, many successful enterprises own and control little more than their core IP, but strategically partner with external specialists to fulfil the rest of their requirements. 

Higher efficiencies, lower costs

As a conglomerate, and assuming a well-integrated and disciplined management backed by tight IT systems, they deliver functionality at higher efficiencies and at lower cost than any single entity could hope to achieve. 
Their IP is the tip of the iceberg, the apex of the pyramid. Beneath it now sit the myriad of functions the old corporation used to control but now may longer wish to:

• Manufacturing
• Distribution
• Information technology
• Financial systems
• Research
• Marketing
• Human relations
• Customer service and CRM
• Loyalty programs.

IT outsourcing 

Outsourcing can take place anywhere, provided the IT infrastructure is of a standard and quality to support remote communications.
Paradoxically, outsourcing can also take place within the host organisation. It happens when independent, external professionals are deployed into a business over medium to long term contracts while remaining fully employed by the contracting company.
Where to for IT outsourcing now?

The trend towards this form of functional solution has grown significantly in the last few years. The development is particularly prominent in IT departments of larger organisations where IT design, installation, maintenance and daily operations are a critical component of the product or service offering.

According to Stephanie Overby, a regular and astute contributor to the respected platform IT CIO.com, the main trends for 2015 IT solutions will include:
•    Closer emphasis on and connection between business outcomes and the compensation and incentives offered to IT solution providers
•    Further developments in autonomics (self-managed computer networks) and its convergence with cloud technologies
•    Greater convergence of virtualisation and cloud technologies for a more marked level of standardisation.

Watch out for our next blog where we will comment further on outsourcing trends and actual developments.
Corporate Information Systems (CIS) is a specialist IT solutions provider of managed resources programs, IT contract and consulting services and executive search and selection services.