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 / Autumn 2006 / Issue 44(originally published by Booz & Company)


How to Be an Outsourcing Virtuoso

In many instances, visionary business leaders are helping shape the market for future growth. GM’s Ralph Szygenda was instrumental in driving several vendors to globalize their capabilities to meet one of GM’s key requirements — a worldwide delivery model. He says, “I talked to the CEOs of the IT companies and I said, ‘Hey, I’ve got this problem. Not only is this an issue for GM, but you’re impeding the growth of your own business. Every time you go into a new engagement, you’re reinventing processes to run your business. And by the way, hardly anybody’s going to use one IT company ever again, given significant off-the-shelf products, ubiquitous telecommunications, and integrated IT services. So now why don’t you make it easier for customers, from an integration viewpoint?’ I urged them to build the foundation, to do the fundamental process work to standardize collaboration across their businesses.” Mr. Szygenda’s efforts encouraged GM’s outsourcing partners to retool their businesses for the long haul. He helped them understand the evolving needs of major clients, and together they created fungible processes that the partners could in turn offer to other clients.

Similarly, P&G enabled its suppliers to enhance their offerings. According to Mr. Passerini, “for all three of our suppliers, our business was not flat-out outsourcing. It was a way for each to build internal capabilities to go to market. For example, HP had declared that they wanted to move into the IT business services industry. P&G’s business gave them instant credibility in the market. IBM already was strong in IT outsourcing, but wanted to move into HR, so they created their HR division, acquiring our world-class assets, people, processes, and systems. Jones Lang LaSalle already was working in facilities management, but it was not as multinational as we were. So the P&G business gave it an instant global footprint.” Clearly, only the largest multinationals have enough influence to shape the vendor base. But the implicit point holds for any customer: Don’t settle for the market’s status quo. A proactive approach might just pay off in services that can transform your company.

Mr. Szygenda, Mr. Passerini, and the other leaders we spoke to are learning to take calculated risks that lead to significant upgrades in efficiency and quality. They all have developed what Mr. Passerini calls “a completely new set of skills” for dealing with a strategic tool that constantly shifts shape. “The world is no longer about monolithic integration of businesses. It is about agility, responsiveness, flexibility, and, more and more, working within a network. So we really had to learn how to operate in a networked business,” he says.

Integral to that new set of skills are the ability and willingness to look beyond the “core functions” — traditionally the partition that separated indispensable competitive advantage from transactional services — when considering what activities to outsource. In recent years, the notion of what functions must stay in-house to maintain a company’s competitive edge has become far more fluid. Industries such as financial services, pharmaceuticals, and consumer electronics have led the charge by outsourcing such “core” areas as product development, market research and analytics, advanced customer care, and clinical trials.

“You must always focus on what it is you’re in business for,” says Mr. Mullinax of Duke Energy. “We’re a utility business. We generate and deliver power, and we collect for the services; we move natural gas. We make our money by having very reliable service and having the expertise to deal with the regulatory bodies. Everything else behind that is a service that you can source in a variety of ways.”

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  1. Amy Bernstein, editor, Outsourcing Thought Leaders: Managing Business without Borders (strategy+business Books 2006): In-depth interviews with the customer and provider executives quoted in this article. Click here.
  2. Anne Chung, Tim Jackson, and Tim Laseter, “Why Outsourcing Is In,” s+b, Third Quarter 2002: Strategic operations outsourcing encompasses core activities, such as manufacturing or logistics, that could substantially affect a business if not performed well. Click here.
  3. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (Farrar, Straus and Giroux, updated 2006): The clarion call of globalism — how lower trade barriers, reduced political resistance, and technological advances have transformed business across the world.
  4. Alex Kandybin, Martin Kihn, and Cesare R. Mainardi, “Reinventing Scale: How to Escape the Size Trap,” s+b, Second Quarter 2002: Outsourcing can be a useful tool in applying the concept of scale differently across different parts of a business to unleash real power and unlock hidden value. Click here.
  5. Bill Lakenan, Darren Boyd, and Ed Frey; “Why Cisco Fell: Outsourcing and Its Perils,” s+b, Third Quarter 2001: Warning signs from the last wave. Click here.
  6. Tim Laseter, “When Offshoring Isn’t a Sure Thing,” s+b, Fall 2004: How transportation costs, labor intensity versus capital intensity, and market responsiveness play into decisions about offshoring. Click here.
  7. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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