Outsourcing

One can mitigate market cycle risks. One approach that has proven effective in recent years is the trend toward outsourcing, off-shoring, and virtualization. By farming out non-core business processes such as customer service and manufacturing, a company can reduce its overhead and enhance its ability to weather unforeseen downturns in the market without having an overly negative impact on earnings. Yet, like many solutions, outsourcing also can create problems. Inconsistent staff training and capacity management can be problematic with outsourcing. More insidious, however, is the potential loss of critical business competencies to competitors that the outsourcer accidentally finances. Looking at IBM’s bargain sale of its PC business to Lenovo, the Chinese contract manufacturer that actually assembled the machines for Big Blue, one can see the perils of shipping an entire business process to a low-cost provider. That low-cost provider eventually becomes your low-cost competitor and you’re better off sprinting for the exit door.

Conversely, if you happen to have the fortune/misfortune of seeing your business change from being a primary player to an outsourced vendor, you’ll experience the whipsaw of market cycles. What is the best strategy for coping with serving at the whim of your virtual partner? Well, you can turn your employees into contractors, which makes them an outsourced commodity of their own. You can get rid of them and rehire as demand dictates. Sounds great, until it happens to you.

So what does this mean to you? You’re probably either ready to run off to circus school or saying something like, “I’m in butane refining. I don’t bet my company. My business is fine, thank you very much!” Perhaps you are, perhaps you are not. The lesson to focus on is how high the stakes have become in today’s business world and how you can best position your company to succeed—and still stay in compliance with the law.

We work in a business era of increasingly fast and evasive moving targets. This may not be big news to you, but I wanted to underscore just how complex it can be to navigate the management of a large enterprise in uncertain times. The ultimate conception of effective business management that makes sense today is the idea of agility. Agility refers to the capacity of a business to react to change without compromising strategy or earnings. Agility means having the ability to make strategic and operational moves quickly to take advantage of profitable trends without having a negative impact on long-term earnings viability. Agility is the do or die mandate of business in the twenty-first century. Companies that are agile are best suited to survival and success. Those that lack agility are exposed to great risk, and may not make it in the coming years.