2016 Readers' Choice Survey: Outsourcing

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2016 Readers' Choice Survey: Outsourcing

By Kara Romanow, Alarice Rajagopal, and Jamie Grill- - 01/22/2016

By: Simon Ellis, VP, Global Supply Chain Strategies, IDC Manufacturing Insights
 

Outsourcing

Business and IT outsourcing continues to be a popular way for consumer products companies to more efficiently utilize their scarce resources. Over the last decade, at IDC Manufacturing Insights, we have seen businesses consistently ‘extend’ those elements of their business that they deem non-core, and thus becomes opportunities for outsourcing. Certainly the notion of outsourcing is not a new concept, but the extent to which consumer products manufacturers outsource may be. Indeed, we see a number of businesses now that don’t actually make any of their products; instead the manufacturing process is fully outsourced. Information technology is another great example of a significantly outsourced functional area.

The Top 10 outsourcing companies listed are largely the ‘usual suspects,’ and the ones that we encounter most frequently when discussing this topic with consumer products manufacturers. The roles that they play are mixed obviously. Service providers like HP and IBM play more of an IT outsourcing role; others like Mindtree or TCS, more of a line-of-business process outsourcing role. But ultimately it’s a similar process and done to facilitate efficiency and allow companies to stretch both capital and operational funds a little bit further. We certainly see the Indian outsourcing firms increasingly ascendant with consumer products companies, and they are increasingly invited to bid on even the largest deals. Accenture remains a very strong option in this industry segment – as they have been for a long time. I’m a little surprised Deloitte is not on this list, though perhaps their role in strategic consulting makes them less significant in the outsourcing space.

All of the noted vendors on the list bring strong capabilities to their consumer products clients. The choice of an outsourcing partner is a complex combination of capabilities and price. To a degree the advice that ‘you get what you pay for’ applies here, the reality is that there has been a convergence of pricing driven by the success of the Indian outsourcing firms. They have seen prices climb, while the more traditional consulting firms have seen prices fall.

Outsourcing remains an important area for the majority of consumer products companies, and will only grow in importance as digital ‘transformation’ affects the way that this industry operates. At IDC, we estimate that a significant amount of all IT investment dollars will go to digital technologies over the next five years. For businesses whose expertise is in brand management, marketing and sales, the ability to optimally manage evolving digital technologies is much more likely to be an outsourced rather than an in-house capability. Those consumer products companies that recognize this, and leverage external expertise in non-core areas broadly, are the ones that will be more likely to succeed in a rapidly shifting marketplace.