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Strategic Outsourcing for Small Business

"By strategically outsourcing and emphasizing a company's core competencies, managers can leverage their firm's skills and resources for increased competitiveness."
James Brian Quinn, Buchanan Professor of Management, Dartmouth College

Over the past few years, outsourcing has become an increasingly important part of the business strategy of leading organizations around the world. By strategically outsourcing non-core activities, successful firms focus their resources on the things they do best. At the same time, they powerfully leverage the skills and resources of outside specialists to gain a significant competitive advantage.

This is certainly no less true within the information technology department than it is in so many other areas of the enterprise. In fact, today's technology executive is becoming far more a strategic integrator than an operational overseer is. For many savvy CIO's, outsourcing has become central to how they deploy a robust technology program in the face of ever increasing business demands and an ever scarcer skilled resources. The question has now become, can any technology organization survive if it attempts to do everything itself?

As a result, outsourcing has become an essential tool for the design, development, deployment, and operations of a firm's virtual global trading community. Organizations on the leading edge of this management revolution, such as Chrysler, Engelhard Corporation, and The Royal Bank of Canada, are being rewarded. They are winning in their industries, meeting, and exceeding the expectations of their customers and of their shareholders.

Today, 97% of all companies use their computers to conduct some form of electronic commerce and overall electronic commerce spending is growing by 8% year-upon-year. At the same time, information technology outsourcing expenditures are exploding by 26% a year and by the year, 2002 will top $175 billion in the U.S. alone. These two forces - electronic commerce and outsourcing - are coming together to redefine the way business is done and the way businesses are managed. Virtual global trading communities are quickly becoming the lifeblood of most organizations and outsourcing is quickly becoming the tool of choice for getting the needed technologies and programs online quickly.

For example, Chrysler used electronic commerce outsourcing to reach thousands of new trading partners through its virtual community. Purchase orders and invoices that once took Chrysler three weeks to process are now handled in 24 hours. Millions of dollars of costs have been taken out of the company's operations. Engelhard Corporation, a supplier of environmental technologies and specialty chemical products, is using electronic commerce to redefine many of its internal business processes, improve service to its customers, deepen, and strengthen these critical relationships. The Royal Bank of Canada designed and deployed an automotive dealer floor plan and lease-financing program, nationwide, in less than nine months. In each case, outsourcing was the key.

The final question is what can other technology executives learn from these experiences and apply to their own situations? The answer, quite a bit. There is a growing body of thinking and knowledge on the planning and executing of electronic commerce outsourcing. The purpose of this article is to share some of the most critical points and to offer insight into what others have done, why, and the lessons learned.

Outsourcing is fundamentally changing the role of today's technology executive. Used effectively, it has become a powerful tool for solving some of todays most pressing business challenges.


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