Instead of working with a host of vendors to get the job done, in a more strategic model corporations work with a smaller number of best-in-class service providers and integrate the operations across themselves and all of their providers. The working relationships with providers evolves from adversarial vendor-supplier relationships to long-term partnerships between equals where the emphasis is on mutual benefit. Michael Corbett, IAOP Executive Director, defined strategic outsourcing as, "the redefinition of the corporation around it's core competencies and strategic, long-term, results-oriented relationships with service providers." It is fundamentally redefining the business and separating the core from non-core activities and making decisions about how to get the work done.
Transformational Outsourcing
Transformational outsourcing is the term used to describe third generation outsourcing. If the first stage of outsourcing was about doing the work with the existing rules, then the second stage is about using outsourcing as the corporation is redefined. The third stage is using outsourcing to redefine the business.
To survive today, organizations must transform themselves and their markets in an ever more daunting challenge to redefine the world before it redefines them. And outsourcing has, once again, emerged as the single most powerful tool available to executives seeking this level of business change. This new transformational outsourcing recognizes that the real power of outsourcing is in the innovations that outside specialists bring to their customers' businesses. No longer are outsourcing service providers simply viewed as tools for getting more efficient or better focused, they are seen as powerful forces for change — allies in the battle for market- and mind-share.
Outsourcing can be used to radically change the definition of the business—open new markets, deliver new customers, and create new products. Outsourcing is leverage. Here outsourcing is a vehicle for changing the firm's relationships with customers, employees, and business partners by working with best in world partners. It's enabling growth. It's the way to grow by alliance. When managers realize that outsourcing relationships are a way to invest in the future of the firm they are thinking differently. Transformation outsourcing is not about creating dependence, it's about actively creating interdependencies that serve the interests of all parties. Mission Foods uses Ryder Logistics to deliver it's products to new markets in ways the company could never have done alone. Where once firms kept outsourcing in the background, never letting their customers know part of the work was delivered by a third party, now firms co-brand products/services and firms march out their outsourcing providers to instill confidence in customers and business partners. "No longer are outsourcing service providers simply viewed as tools for becoming more efficient or better focused, they are seen as powerful forces for change, allies in the battle for market and mindshare," says Michael Corbett. Outsourcing relationships have the power to thoroughly redefine how business is done.