Outsourcing can be valuable, when applied correctly

Melbourne, May 6 2009 – Given the current recessionary times, external sourcing is an excellent opportunity for shedding costs and accessing best in class service provision, as the $150 billion annual outsourcing industry can attest to. However, this drive to cut costs must be balanced with clarity surrounding the strategic imperatives behind this sourcing decision.

Sourcing is a critical management tool, but must be considered in alignment with the longer-term business strategy as well as operational effectiveness.

“How do we achieve the “promised” 25% to 50% savings? Buyers must embrace a well-thought through strategic sourcing approach that considers the current situation (in terms of principles, current capabilities, risk profile and business drivers) and market competence, first and foremost.” Jens Butler, Principal Analyst, Ovum

Approaching sourcing in the wrong way can lead to problems, non-achievement of the targeted outcomes and even negative publicity.“By not aligning with the longer-term goals, it can potentially put the organisation’s health on the line”, said Butler. “We have seen engagements, for example, where initial short-term price reductions constricted the future growth path of the organisation and ultimately damaged the longer-term vendor relationship.”