Strategic CIO // IT Strategy
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4/19/2005
04:28 PM
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Outsourcing Successes Rival Those Of Marriage

Companies don't outsource core competencies. It's a concept carved in stone. But exactly what is or isn't a core competency? You might be surprised that routine processes commonly outsourced might be core to a company's bottom line. Take, for instance, accounts payable.

Companies don't outsource core competencies. It's a concept carved in stone. But exactly what is or isn't a core competency? You might be surprised that routine processes commonly outsourced might be core to a company's bottom line. Take, for instance, accounts payable."It wouldn't seem uncommon for someone to think of outsourcing accounts payable," says Deloitte Consulting senior strategy principal Ken Landis. "You can't think of accounts payable [as] being a strategic asset of a company until your vendors don't get paid, and your relationship with them is damaged."

Landis' observation is based on a 39-page study, Calling a Change in the Outsourcing Market, that Deloitte released Tuesday based on interviews with 25 leading large companies. The majority of respondents said they had significant dismal experiences with outsourcing projects and now exercise greater caution in approaching such deals.

Some outsourcing contracts among survey takers totaled 10,000 pages, yet several companies reported service interruptions. Such interruptions at inopportune times -- even for outsourced apps that are traditionally deemed as noncore, such as accounts payable -- could prove harmful. "Not one of those companies [taking the survey] felt that those contracts would truly cover them for their business loss," Landis said. "I mean business loss in its broadest sense: relationship with the customer, not just out-of-pocket expense, but the value of goodwill in future business and missed opportunity as well."

The failure in outsourcing parallels another American institution: divorce. "It's striking," Landis says, "success with outsourcing mirrors that in the divorce rate; that is, one in five deals end within a year, and 50% of all deals end in five years."

Still, outsourcing will have a role in the future. "Outsourcing will be focused on transforming an organization or fixing a specific problem, and then quickly bringing those skills back in-house," Landis says. "You don't want to rely on someone else to breathe for you."

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