Best Cases of Outsourcing
Sometimes it comes down to one good decision that can see a business suddenly grow and succeed. Alternatively, a bad decision or missed opportunity can spell disaster.
If you are wondering how your business might benefit from outsourcing, then take a look at the inspirational cases below. It might just prompt you to consider something in your own business that could be improved or done more efficiently by someone else.
There is the mix of companies on the list, including a number of successful startups which took outsourcing decisions very early on.
In each of these cases it wasn’t a quick decision that was made, but a very strategic and deliberate decision, so take some time to read these great business success stories.
Procter & Gamble
Selling primarily fast moving consumer goods (FMCG), Procter & Gamble need to bring a huge amount of new product to market and keep ahead of developments, trends and competitors to maintain their market share.
Given the race they were in, P&G made the decision to outsource some of their research and development activities. They still have about half of their R&D activities outsourced following the phenomenal success.
Outsourcing resulted in a boost to their innovation productivity by 60%, as well as generating over $10 billion in revenue from over 400 new products.
As a growing multi-national company, Unilever has expanded to have operations across over 24 countries. By 2005, it faced a situation where the company was using a variety of enterprise resource planning (ERP) systems across its various divisions and countries.
Unilever’s management took the decision to develop a single ERP system for Europe. The project was outsourced to specialist IT firms and directly contributed to around €700 million savings on operational activities annually.
Acer is the world’s second-largest PC manufacturer, which actually runs and a very lean operation of around 7000 employees. Management at the Taiwan-based company took the decision in 2000 to focus on its strengths of branding and marketing and outsourced its manufacturing operations.
This proved a very successful move, as the company was rewarded with faster-growing sales and gains in market share.
Today What’s App is the most ubiquitous messaging app which has displaced traditional SMS communication, allowing easier local and international messaging, chatting and calls. It received an incredible 50 million downloads in its first 3 years since launch.
What’s App was started by two former Yahoo employees, Jan Koum and Brian Acton, and back in 2009. With minimal initial funding (initial seed round was $250,000), they had to keep costs down and utilized developers in Eastern Europe to build the product.
Core development was outsourced to Russia, starting with iPhone developer Igor Solomennikov, who relocated to the US eventually as company’s CIO. By 2012 they had only 30 full-time and 5 part-time staff, mostly focussed on customer support and operations. Only a couple of years later WhatsApp sold to Facebook for a massive $19 billion.
Mark McRae and his 30 companies
Mark McRae is an entrepreneur from the Sunshine Coast in Australia. His has built an empire of more than 30 companies by using the power of outsourcing and accessing global talent. McRae outsourced to various countries, such as Malaysia, the Philippines, South Africa, the USA, and India.
“Outsourcing can give you access to a dizzying array of highly skilled professionals from all over the world. For example, to produce a professional documentary, I hired a scriptwriter in the USA, film crew from Canada, post-production team in Croatia and editor in Serbia,” says McRae.
It has paid off well, as he generated around $300 million in online and offline income through his multiple businesses and 30 companies.
Alibaba is often now referred to as the Chinese equivalent of eBay. It is now a huge online marketplace, but its initial development was outsourced to US developers. At the time the talent they needed to compete with giants like eBay was to be found in a US company.
A more detailed history of the company can be found in two books: Alibaba: The Inside Story Behind Jack Ma and the Creation of the World’s Biggest Online Marketplace and The House that Jack Ma Built
JM Family Enterprises
JM Family Enterprises is an automotive company with diversified businesses focus on vehicle distribution and processing; financial services and technology products. Forbes magazine ranks JM Family as the 21st largest privately held company in the United States.
The company outsourced all mainframe hardware, software, and operations because mainframe usage leveled off at $8.2 billion. The contracted company was able to immediately optimize operations so that critical internal reports were delivered on time each month.
Ken Yerves, Senior VP explains: “it was the same hardware. The same data. But they were able to gain efficiencies because they knew how to run a mainframe better than we were ever able to.”
GitHub is another example of a technology company where a core functionality of the product was outsourced to a development contractor. GitHub is a popular online tool which people use to host, document, edit and share private code. It has a very active and engaged community, with more than 56 million projects posted.
Founded in 2008 by Chris Wanstrath, PJ Hyett, and Tom Preston-Werner, the company contracted Scott Chacon as a consultant, who then wrote the backend of Gist, a sharing feature inside GitHub.
From an initial meeting through a Ruby on Rails meetup group, Chacon did well and went on to become CIO of GitHub. As Preston-Werner says: “Always hire someone who is better at something that you are”.
Google is certainly not a name that people would think of when talking about outsourcing, because they are so large and focussed on cultivating their own internal culture. In fact, they have been taking advantage of outsourcing for years.
Google has outsourced work to IT specialists, developers, as well as virtual assistant across many projects they work on. One notable example is when they decided to outsource phone and email support for AdWords to around 1000 reps.
AdWords is one of the company’s top revenue-generating products, and it sought a good ROI for the customer support it was offering.
Feedback from the operation also contributed valuable insight about their advertisers and fostered further product development.