Outsourcing Leadership Blog

Outsourcing Mathematics

Posted by Chuck Rosenfield on Friday, 19 February 2010 18:54

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Categories: Outsourcing

Outsourcing is comparable to the synergies created by an acquisition in which the algebraic properties are no longer applicable to the rules of mathematics.

1+1 does not equal 2
2-1 does not equal 1

The value of acquisitions create the concept of revenue growth multiples through product and service line leverage; additional geographic penetration; and sharing innovation through research, development and best practices. At the same time, redundant processes, expenses and staffing are eliminated, and the benefit result of lower costs increase the bottom line. Benefits also flow through to the final customer, higher sales and lower costs are achieved by one entity (as opposed to the two, separately) and shareholder value is increased exponentially. Combining the two entities achieve results of:

1+1 equals 11

Placing processes with an outside provider brings lower costs, leveraged industry experience, improved processes and innovation that was not readily available while working in an isolated environment away from others. Companies not using outside providers define its best practices as what employees know as existing, and the only reference point is oneself. Outsourcing algebra equation is:

2-1 equals something <1
Value Creation > 2

Here are some of the pieces of value creation and how it works:

•    Labor arbitrage
•    Elimination of tools
•    Training costs reduction
•    Leveraged environment
•    Capital preservation
•    Buying by the drink
•    Cost control and avoidance
•    Soft savings in telephony, benefits, environmentals and human resources

Savings opportunities exist with the elimination of a layer of management staffing that is no longer required to oversee the staff and replaced with a leaner vendor management organization to manage the provider. Available department time allows for greater focus for supporting company strategies and business growth.

Share your comments with others about how outsourcing achieves: 2 – 1 equals something < 1; Value Creation > 2

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