When a company contemplates improving their competitive position in the marketplace, they typically think about doing something internal to transform their posture—like mastering a new technology, developing an innovative process, or even adapt a fresh business model.
These traditional approaches to improving competitiveness are reasonable but not the only option. Organizations increasingly use outsourcing to change the competitive landscape, reposition their firms, and/or renovate how they do business.
Outsourcing works to reduce costs, grow revenue, and be first-movers to market.
Why the Market is Moving Toward Outsourcing
We can cite a number of ways outsourcing improves competitive advantage and, consequently, why more companies are taking advantage of the proposition.
- First, there has been an increase in the number and types of capabilities that external product development contractors possess. Suppliers concentrate on mastering and building upon a core set of competencies, so they built to handle the toughest challenges within their domain and continue to offer a broader scope of services.
- Second, advances in technology and other innovations make it more advantageous for firms to outsource because of the difficulty in simply keeping up with the latest advances.
- Third, even if companies could keep up with changes, it is not cost-effective to make the investments necessary to be on the cutting edge of countless technologies. With ever-shorter times to market and product life cycles measured in months, not years, speed has become a defining competitive advantage for many businesses.
Competitive Advantages Realized Through Outsourcing
Specific advantages, or reasons for product development outsourcing, vary from business to business. Whatever the reasons, the advantages are compelling.
- First, a major advantage referred to earlier is that it offers firms a way beat the competition to the market by engaging a partner with the expertise and capacity to rapidly bring new innovations to market.
- Second, experienced development partners can also provide the catalyst for firms to swiftly enter and execute within new markets.
- Third, reducing investments in non-critical functions gives firms the flexibility to act with reduced financial burdens and, as a result, the ability to respond opportunistically in new markets.
- Fourth, outsourcing enables businesses to focus on core competencies and build those skills that directly add value to customers.
Direct and indirect advantages from outsourcing are endless. If an organization did not have the option to outsource, it would be saddled with doing everything itself, leaving little time to create the skills that are the foundation of competitive advantage.
As the benefits of outsourcing amass, firms frequently extend those relationships and look for more powerful ways to leverage the contracted company. They realize that these relationships can help them innovate and fundamentally change the business status quo; because the contractor and recipient are both focused on exactly what they do best.
Given the overwhelming advantages, product development outsourcing is becoming increasingly strategic and even transformational.
Outsourcing is changing how business is done. It is a powerful way to improve business focus, realize better asset utilization and generate ever-greater corporate value.