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Who do you trust to help provide for your customers? Many companies only like to trust those who work on the company premises. While that approach increases the potential access to information, it may also deliver higher costs than being more trusting of outsiders.
Most studies of best practices show that companies operate in most areas at around the level of average, with some serious advantages and deficiencies in a few areas. Why not turn your challenges over to people to are world-class instead, where it is important to be as good as possible? In the process, you will undoubtedly lower your costs.
Companies are learning that the only thing that works better than focus is even more focus. Outsourcing becomes an important way to help create that attention.
Another advantage is that specialists in those outsourced activities can often produce levels of effectiveness and timeliness that your company could never match.
Data storage giant EMC is a good example. While the firm spends billions on hardware and software development tied to improving the performance of mass storage for its customers, manufacturing itself is a simple activity.
The company puts together a few sub-assemblies, and then places its attention on a rigorous testing process where the assembled products are run night and day in very hot and cold environments and put through vibration to simulate shipping in order to find if there are any loose connections. If a component fails a single test, it is replaced by one that has already gone through the entire test cycle.
As a result, EMC's customers get great reliability based on the firm's component suppliers and EMC's own torture testing methods. If EMC made all of its own components and assembled them all, its product costs would be higher and its reliability would be lower.
Most companies doubt that they can use very much outsourcing. Yet Cisco Systems, one of the world's most valuable technology companies, outsources everything it can. This approach allows the company to be more flexible in creating and delivering new solutions for customers. By accessing new technologies faster, costs are lower.
Outsourcing is equally valuable to non-technology companies, especially where complex processes are involved. A payroll specialist, for instance, can probably cut your payroll processing costs by 90 percent and reduce mistakes. Similar opportunities abound throughout your routine, but non-critical, activities.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
Donald Mitchell is chairman of Mitchell and Company, a strategy and financial consulting firm in Weston, MA. He is coauthor of seven books including Adventures of an Optimist, The 2,000 Percent Solution, and The Ultimate Competitive Advantage. You can find free tips for accomplishing 20 times more by registering at: www.fastforward400.com
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