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


How to Be an Outsourcing Virtuoso

Like Mr. Mullinax, Mr. Hillstrand of TXU rejects the standard core-versus-noncore dividing line. “I don’t think we’d impose any artificial limits” on what to outsource, he says. “Every time we look at our business, we look at it with an eye to making it better. Do I think that we’re married to our own steel? Or that there are certain things that we simply would never let go of? Not necessarily.” He is always searching for better ways to serve TXU’s constituents. “We don’t hesitate to look at the tools that are out there, whether that’s development of joint ventures, disposition of assets, or reconfiguration of businesses into a synthetic arrangement of ourselves and best-in-class providers to achieve a financial and operational outcome that’s really desirable to us.” This attitude is integral to the “distinct competency around outsourcing” that Mr. Hillstrand says TXU is developing in its leadership.

Over the past few years, academic researchers like Charles Handy and Shoshana Zuboff have written about the deliberate design of “flat” and “networked” corporations. But ironically, it’s the rough-and-tumble world of Asian and emerging-nation outsourcing providers that has created actual networked businesses as a model for the future. There’s a growing awareness that, despite the potential pitfalls, outsourcing has become the sine qua non of the successful global corporation. “Every day some part of our business — and this is an evolving discipline for TXU — is asking itself, ‘Are we the natural owner of function X?’” says Mr. Hillstrand. That kind of continuous self-examination may ultimately turn out to be the most significant aspect of the new outsourcing — and potentially the gateway into yet another, still more sophisticated wave of virtuoso activity.

Reprint No. 06304

Author Profiles:

Vinay Couto ([email protected]) is a vice president with Booz Allen Hamilton in Chicago. He advises companies across multiple industries on BPO sourcing strategies and assists those clients in running outsourcing programs.

Ashok Divakaran ([email protected]) is a principal with Booz Allen Hamilton in Chicago. He specializes in the development of strategies for large-scale organizational transformation, with a focus on outsourcing, offshoring, and shared services.
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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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