10 REASONS COMPANIES OUTSOURCE

JAMES TENSER

The outsourcing trend is much bigger than just the merchandising service business.

The Outsourcing Institute, New York, defines the practice as "the strategic use of outside resources to perform activities traditionally handled by internal staff and resources."

Outsourcing is frequently invoked in tandem with corporate downsizing and as such is often regarded primarily as a cost-saving technique. But the institute says leading companies are often more interested in using outsourcing to allow their organizations to focus more clearly on their own "core competencies."

The Outsourcing Institute bases this finding on a series of studies it has conducted since 1991, including surveys of 1,200 companies. Here are some excerpts from its findings on why companies outsource:

1. Improve company focus. Outsourcing lets the company focus on broader business issues while having operational details assumed by an outside expert. It can lead to a clearer, more effective focus on the customers' needs.

2. Access to world-class capabilities. Because they are specialized, outsourcing providers can bring world-class capabilities to meeting the needs of their customers.

3. Accelerate re-engineering benefits. Outsourcing is often a byproduct of another powerful management tool -- business process re-engineering. It allows an organization to immediately realize some benefits from this process.

4. Share risks. When companies outsource they become more flexible, more dynamic and better able to change themselves to meet changing opportunities.

5. Free resources for other purposes. Most often these are people resources.

6. Make capital funds available. Outsourcing is a way to reduce the need to invest capital funds in noncore business functions.

7. Cash infusion. Outsourcing often involves the transfer of assets from the customer to the provider, such as equipment, facilities, leases and licenses.

8. Reduce and control operating costs. This is the single most important tactical reason for outsourcing. Today's customers are too sophisticated to accept the costs associated with an organization's attempt to maintain singular control over all its resources.

9. Resources not available internally. Companies outsource because they do not have the access to the required resources within the company. Sometimes this is due to expansion or reorganization. It may also be due to changing business requirements.

10. Function is difficult to manage or out of control. Outsourcing is an option, but for companies that cannot clearly articulate their requirements, expectations or needed resources, outsourcing can make bad situations worse.

For a brand marketer's sales force, headquarters selling and category management consulting are today's core competencies. Many companies view in-store merchandising, which requires different and less expensive skill sets, as an obvious activity to hand off.

The brand marketer who has his outsourcing objectives straight is better able to tackle the most important question of all, says Lisa Smith, chief executive officer of Pimms, Minneapolis.

"Are your objectives best served using in-house capabilities or by outsourcing?" she says. "Not everybody should outsource."

Smith offers an example, "If a goal was to cut costs and outsourcing would increase their costs, that would not be a good decision for them. Outsourcing is not necessarily the most cost-effective way to go."