Is Collaborative Partnering the Future of Outsourcing?

Key Insights

A PwC research indicates that many outsourcing deals collapse even before the contract has concluded because of mistrust between service providers and customers.

Analysts feel that businesses are in a constant state of conundrum when it comes to outsourcing.

They are looking at the pros and cons- between cost savings and growth, speed and quality, and organizational cohesion and innovation- but coming up with no solution.

However, there are two sides to this debate.

Many feel that the global outsourcing industry is deeply established. It is an integrated business strategy that is maturing and evolving to deliver value beyond just cost savings.

For others, the full benefits of outsourcing often remain unrealized with organizations becoming disillusioned about the entire landscape.

Though outsourcing is a versatile business solution, it is the people factor- the interactions and intents of the people involved- that can hinder its efficacy, or, amplify it.

Collaborative partnering is one domain where such interactions pay off.

An increasing number of customers and service providers are gradually shifting from more traditional buyer/seller relationships to collaborative business models.

Barriers to Traditional Outsourcing

As stated before, outsourcing has matured beyond just cost reductions. It has become a way for organizations to access better talent, enhance capabilities, gain flexibility, reinvent the business model, and ultimately, drive innovation.

The market is seeing a move away from the traditional approach to outsourcing. Why?

Because arrangements are becoming increasingly complex and businesses require a wide network of stakeholders outside their own four walls.

The traditional approach to service outsourcing works quite well for a commoditized service such as IT infrastructure services. However, it becomes ineffective with outsourcing arrangements that are less commoditized.

With both customers and providers employing multisourcing and open business models, outsourcing requires a complex approach and a greater degree of collaboration. Something on the lines of disruptive outsourcing, perhaps.

In such cases, both customers and service providers need to get together to coordinate better and devise new initiatives. Traditional single-source outsourcing inhibits this development.

The growing complexity of products is another contributor to the risks involved with traditional outsourcing. More and more products are being tied to the Internet of Things (IoT), making them more challenging to support.

And there are no signs of this growth slowing down. In fact, the worldwide number of IoT-connected devices is projected to increase to 43 billion by 2023, according to a research by McKinsey.

How to Enhance Capabilities on the Strength of Collaborative Partnering

Many companies have improved their bottom line and reduced costs with traditional outsourcing. But as global outsourcing evolves and makes collaborative partnering a business imperative, organizations are discovering that even greater returns are possible.

Let’s look at some of the major benefits of collaborative outsourcing.

1. Competitive Advantage

With collaborative partnering, companies have access to emerging technologies such as Cloud and Robotic Process Automation (RPA).

Such technologies accelerate innovation, increase speed-to-market, enhance customer experience, and improve performance.

A Deloitte survey highlights that as many as 93% of respondent organizations are considering the use of these technologies through collaborative outsourcing.

When executed well, such a tech stack can deliver a competitive advantage by making businesses more agile, efficient, and effective.

2. New Approaches to IP

Traditional approaches to IP (Intellectual Property) run on the assumption that it is the role of a business alone to develop, own, protect, and isolate its IP from becoming outdated.

But new trends are leaning towards a more flexible approach where new ideas grow and develop through global collaboration.

Many organizations are realizing the benefit of sharing ideas and are encouraging this trend by offering additional rewards in the form of payouts.

Amid the rapid changes to the business world, organizations are collaborating on work processes to stimulate practices that, in the long term, generate market value and help them to achieve a competitive edge.

3. Standardized Practices

Quality, regulatory compliance, and cybersecurity are top priorities for businesses today.

Outsourcing partners can help augment it as they work with many companies within an industry on a variety of projects, accumulating a considerable amount of expertise.

Your outsourcing partner will infuse the critical insight and skills required to overcome difficult challenges as well as enable 100% compliance across projects.

4. Learning & Development

A major advantage of collaborative outsourcing is that it enables knowledge transfer between teams.

Companies can foster a culture of continuous learning that helps internal resources to enhance their capabilities and generate innovative ideas.

If we take lessons from COVID-induced business challenges, then one thing clearly emerges.

Workforces with a continuous learning mindset are better equipped to adapt quickly to the next unknown. And organizations are better positioned to reskill and upskill their workforces to rise to the challenges.

5. Scalability

Collaborative outsourcing, especially for smaller companies, is a viable path to expansion.

For instance, you can work with a partner to produce one portion of your product on an on-demand basis, reducing your per-unit costs or inventory-carrying costs. The results? Better profits and improved delivery based on “just-in-time” processing.

The Bottom Line

It is no secret that outsourcing is a core tool in a company’s operational toolkit, and businesses will continue to outsource, irrespective of the experience they receive.

But approaches that companies are taking to the outsourcing paradigm have changed.

While the traditional approach of single-source outsourcing contracts will remain, businesses will be more inclined to go for multi-sourcing arrangements and joint ventures.

In a nutshell, companies that are focused on creating greater customer value and enhancing their success are also the ones that are most convinced that collaboration, rather than the conventional customer-vendor agreement, is the key.