Easier access to the global talent pool and availability of skilled and talented human capital in emerging economies has compelled organizations to consider intellectual outsourcing as a strategic decision.
Traditionally organizations used to outsource mundane tasks for attaining cost savings and labour arbitrage benefits. Now comfortable with the established outsourcing models, they are increasingly outsourcing their complex knowledge-based and value-added processes as well. This trend known as intellectual outsourcing, has become a norm in several industries such as finance, pharmaceutical, insurance, technology, media, education, aviation and retail.
In this dynamically changing business environment, organizations need to continuously evolve their competencies and capabilities to survive the competition. This calls for effective coordination and reorganization of internal resources with externally available competencies. In accordance to this, increasing number of organizations based in developed economies are outsourcing knowledge-based activities to developing economies such as India, China and the Philippines to tap specialized industry expertise.
According to the Associated Chambers of Commerce and Industry of India, the market for outsourcing knowledge-based activities to India is expected to reach US$30b by 2015.
Moreover, the existing performance gap between the organizations’ actual and expected internal knowledge based activities makes it imperative to outsource knowledge-intensive core processes. Organizations are persistently identifying superior performance opportunities with the external vendors or their own “captive” entities.
Intellectual outsourcing not only scales down operational costs but also enables organizations attain operational efficiency and service quality. It saves on time and on management energy to achieve a competitive edge and equips organizations to operate continuously by leveraging time zone differences. However, outsourcing key high-end activities has its own nuances.
The key challenges of intellectual outsourcing are
- Compromised security
- Lack of control over quality
- Potential disruptions and justifying return on investment
Legal, language and cultural factors can also pose these barriers. Organizations need to approach intellectual outsourcing in a long term and strategic way, and closely engage with vendors to create an integrated knowledge flow.
To take full advantage of this paradigm shift, organizations must perform a thorough analysis of their core competencies, competitive information and processes. They can categorize processes or functions to be outsourced by their business impact and risk. However, this needs to be done in a phased manner to ensure seamless integration with daily activities.
Higher risk processes can be outsourced only once enough experience has been gained. Companies also need to ensure robust management of the outsourcing alliances.
Intellectual outsourcing essentially poses immense opportunities for global organizations to gain a competitive edge and drive efficiencies. However, the decision to outsource needs to be strategically driven after a close analysis of the firm’s risks and the plausible benefits to be accrued by outsourcing. Organizations can realize the benefits of these strategic alliances once risk mitigation policies are in place.