OUTSOURCING—A GLOBAL PERSPECTIVE

Abstract

The global business community is experiencing a massive shift towards adoption of outsourced 'back office' transaction services.

Called 'strategic outsourcing', it is driven by the desire of global companies to focus on core activities, and to outsource non-core business processes to specialist global service organisations. It is a significant new market for these organisations, expected to be worth US$40 billion globally, by the year 2000.

While cost reduction is a major benefit, the outsource service provider offers value-added service by its ability to re-engineer business processes to world best practice, its ability to rapidly transition the client organisation to new technology, and by extracting the efficiencies of shared services processing.

The global service organisations see strategic outsourcing as a natural evolution of their service offering.

Outsourcing extends beyond the cost reduction strategies of their consulting service projects: downsizing organisation structure, re-engineering to introduce world class business processes, and transition management for introduction of new technology.

By evolving from these project based assignments, into provision of on-going outsourced transaction services, the service organisations have the opportunity to establish a different strategic relationship with their clients, and add value that a client organisation cannot achieve by itself.

Cost savings come from the operational efficiencies of shared services processing, and the lower operational cost achieved by specialising the processing of non-core, 'back-office' transactions, and sharing overheads between several clients.

Additional business benefits result from the partnering relationship, which can produce new industry specialist services3 valuable to other clients within the same industry.

It is likely that the role of the service organisation will further develop, from the position of strategic outsource business partner, to that of general contractor, where a client selects one major supplier as the single point of contact for all outsourced services. The general contractor becomes responsible for all outsourced outputs, subcontracts the services of all other outsourcing organisations, and remains solely responsible for their service provision.