The flexible corporation: how CEOs can do more for less: it can make anyone nervous to let an outsider in. But nowadays, strategic outsourcing is practically a competitive requirement - Roundtable - Panel Discussion

Chief Executive, The, August-Sept, 2003 by Jennifer Pellet

Roughly 10 years after the Internet first appeared on the radar screen as a possible commercial tool, its influence on the ways companies structure themselves is finally becoming clear. It is now possible to identify processes--from claims processing to call centers to bill collection--that can be pruned out of a company's bureaucracy and transferred to third parties operating in destinations thousands of miles away.

The net result? CEOs are completely rethinking which functions they need to have inside their companies and which ones they can rely on partners to perform better, cheaper and faster.

Like many of the CEOs participating in a recent roundtable on business-process outsourcing cosponsored by Chief Executive and Accen ture, Rick Roseitt of ADC Telecommunications has shifted several functions offshore, realizing substantial savings. "We do assembly offshore, and we've moved some of the businessprocess functions, such as billing and collection, to [companies in] India," said Roscitt, CEO of the $1 billion Minnesota-based broadband company, which has sales in more than 100 countries. "They validate the billing process, correct anything that's incorrect, then ask for and book payments. That function is done on about 15 percent of the U.S.-based rate in India, so the savings for us have been enormous."

While business-process outsourcing originated with costcutting initiatives like Roscitt's--limited to payroll functions and other back-office processes--more and more companies are now expanding the concept to encompass core pieces of their businesses. When the time came for Sysco, a $23 billion marketer and distributor of foodservice products, to revamp its nationwide distribution system, CEO Richard Schnieders opted to contract with Infosys Technologies, based in India, to codevelop the software code that will play a crucial role in the company's supply chain.

"We've always built our own enterprise resource planning systems and plugged other best-of-breed capabilities into that system, but on this initiative we've gone outside," explained Schnieders, noting that the complexity of the project (see sidebar, page 54) demanded outside expertise. "Anybody can build a warehouse; the essential part of the success of the initiative is the software. The system involves aggregating demand around our 415,000 customers on a daily basis and passing that information all the way up the supply chain so that our suppliers can do a more efficient job of scheduling production. There's no question that we didn't have the skill sets or enough folks to do that."

Quality rather than cost savings was the driving force behind both the decision to embark on a distribution revamp and the choice of Infosys, added Schnieders, whose company provides products and services to restaurants, health care and educational institutions and other foodservice customers in the U.S. and Canada. "Efficiency is important, but in the food business it's not the Holy Grail," he asserted. "There are a lot of other things, such as quality and convenience, that are more important. The Holy Grail in food service is differentiating our product offering and helping our customers differentiate their products."

Sysco's quality-over-cost approach, suggested Jack Wilson, CEO of Accenture's business-process outsourcing division, is evidence of a fundamental shift taking place in the outsourcing arena. "To me, outsourcing is misnamed," he said. "Are you taking a function out or bringing talent in? It depends on how you look at it.

"Most people start with the whole notion of cost," Wilson said. "But the more enlightened view is to really look at, 'What are the things I really need to focus on most?' Then you find somebody for whom that business process is their core competency and move in that direction."

Uncover your corporate DNA

Done well, the outsourcing process itself can actually help a company pinpoint the real strengths that drive its business. "You get very, very specific about what makes your company valuable, what makes you competitive and what's sustainable," said Wilson. "It drives home the point that of all of the things that happen in your company, there are a few that are most important and make your company what it is."

For Teleflex CEO John Sickler, who sought to outsource the packag ing of his $2 billion manufacturing firm's engineered products, the process drove home a different point entirely. Teleflex invited three outside firms to bid on providing product packaging. After examining its products, all three outsourcers passed on submitting a quote. "Every one of our [business] units has discrete specification, and because of those variations you couldn't build a critical mass," explained Sickler.

Yet, as other roundtable participants were quick to point out, even an outsourcing attempt that meets with mixed results can provide useful insights. "That input is fascinating in terms of shining the spotlight on your operations," said Roscitt. "When you get such a stunning answer-all three had no bid--they're telling you something about your business."