Companies' core areas shrinking under outsourcing onslaught

THE outsourcing model evolved from the realisation that companies do not have all the expertise in all areas. However, the logic deepened when companies found out that their bandwidth of management and resources did not permit them to do all areas diligently and cost effectively. Added to this phenomenon were other important dynamics such as quick technology changes, skill shortfall, capital expenditure freezes in bad business cycles, growing lack of in-house accountability in fringe tasks and competitive weaknesses. When you outsource an activity, you also convert some fixed costs to variable costs. This was considered a legitimate way to "improve" balance sheets and to shore up cash flows by divesting non-essential assets.

The initial penchant for this was limited to peripheral areas - IT resources, IT applications, equipment servicing, after-sales support etc. The model has now been perfected and both the outsourcer and the outsourcee are comfortable with each other, have brought in tweaks to improve the economics on both sides and achieved some level of operational maturity. The question that remains is where will the outsourcing trend lead us next? What will remain core areas?

A few years ago, a German company outsourced all its equipment maintenance tasks in all its factories to a company. The outsourcee took over all tools and manpower engaged in the activity. The outsourcee was nothing but a new firm the company's maintenance crew opened! Thus all in-house employees became vendors and all in-house resources for the maintenance activity were sold and converted to cash.