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The outsourcing of IT, engineering and business services has benefitted the manufacturing industry profoundly over the past few decades. Outsourcers have successfully taken out costs and helped customers drive efficiencies for their own customers.

In recent years, though, the model has been changing. Competition, combined with the recent global financial crisis, has increased the pressure on outsourcers not only to continue to deliver price advantages but to generate greater value in a wide variety of areas.

Manufacturers are looking for outsourcers to be true partners, capable of providing the traditional services at optimal cost and quality but also be able to truly understand the business challenges and offer value-added and innovative ideas and solutions. This has required many of global outsourcers to reevaluate their operating models and acquire new skills and capabilities to address the new requirements.

Which attributes rank highest on manufacturers’ lists? The following findings are based on a series of personal interviews and discussions with senior business and IT executives of Fortune 50 global corporations, who explained how they would like their outsourcing partners to evolve capabilities beyond improving cost efficiencies.

Comprehensive Quality

Most customers are demanding higher levels of quality in all aspects of the service delivery. Some of the service providers have responded by implementing comprehensive quality systems and training programs for their employees. This has led to lower defect rates, reduced delivery times and costs, and improved customer satisfaction.

Communications and Cultural Fit

The cost efficiencies delivered by outsourcing companies generally have required heavy reliance on use of re­sources from low-cost countries.

While  business communications have generally  been conducted in English, the differences in communication styles and cultural differences have resulted in great challenges, resulting in missed deadlines, loss of trust and frustration on both sides. Service providers have responded through a combination of  approaches including hiring in the geographies where services are delivered, communication and cultural sensitivity training, and providing cultural awareness programs for their customers.

Project Management & Discipline

In the early days of outsourcing, the service providers were tasked with maintenance and support programs which were generally defined in terms of clearly specified and discrete tasks.  These projects were easily executed by teams located in other regions and required limited project management capabilities as long as all of the tasks were performed to meet service level agreements.

Over time, however, customers began entrusting their outsourcers with de­sign and development projects previously performed by other systems integrators, requiring more project and program management skills and capabilities. In addition to acquiring the capabilities, the service providers must have the processes and discipline in place.  Outsourcers that are able to provide the right level of project and program management and the required discipline to manage large and complex programs will clearly enjoy a greater share of the global opportunities.

Progress in Efficiency

Access to talent at lower costs in low-cost countries naturally resulted in greater reliance on manual processes and less use of technology and automation to enable administrative and support functions within many of the outsourcing firms. This  created inefficiencies and longer cycle times in the decision making process and in responding to customers’ requests.

Most outsourcers have addressed this concern and continue to make progress in introducing technology enabled support functions that have greatly im­proved the inefficiencies.

Consistent Performances

Another area of concern for the customers of outsourcing services has been the rather inconsistent performance of these companies across projects of similar nature or performance of the different service areas.

Once again, this has been a result of greater reliance on individuals and immaturity of tools, framework and well defined processes in many situations. As outsourcers have grown beyond being a source of low-cost talent and evolved their capabilities, it has resulted in significant improvements in better consistency and customer satisfaction.

Adding Value

Outsourcers have clearly grown beyond being a great source for executing the mundane and repetitive tasks at optimal cost. As outsourcers are given more and more large-scale and global opportunities previously managed internally by their customers or performed by other systems integrators at much higher costs, they are expected by the customers to bring much better understanding of the customers’ business processes and challenges. They also need to understand how to improve the overall business performance.

Successful outsourcers have been able to address this through placing greater focus on the industry and domain needs of their customers through dedicated industry teams who bring the necessary skills beyond the traditional technical competencies widely available within outsourcing companies.

Consultative Approach

In connection with the request for the outsourcing companies to add more value to the customers’ businesses, outsourcers have to introduce consulting resources and deploying consultative approaches to: a) help identify areas of improvement and provide validation or challenges the customers when necessary; and b) better bridge the business and technology.

While different outsourcing companies have adopted different business models for providing the consulting services to their customers, it is important for them to be clear in their objectives to include consulting capabilities in their service portfolios.

Some are focused on creating consulting organizations and compete with the larger, well-known consulting companies, while others integrate consulting capabilities to help provide greater value to their customers in delivering their core business services.

Innovation and Ideas

In addition to all other requests, many outsourcing companies have been re­quired  to be a source of innovation and offer new ideas, solution concepts and support their customers’ strategic plans.  This requires specific investment in resources and programs that historically were not part of the outsourcing companies’ business model.

However, the successful and forward-thinking providers have been investing and focusing some of their best talents in creating research and innovation organizations that are changing the way outsourcing companies engage with their customers and how they are able to deliver higher value.

Integration Maturity

As outsourcing companies grew over the last few decades, they have added an extensive set of services beyond that of the typical larger global system integrators, such as product design and engineering services and a range of business process outsourcing offerings.

While these new services have provided a great addition to the traditional information technology offerings, many of the larger global customers that use these services have indicated their preference to see a much higher degree of integration across the many different service offerings. This allows the customers to free up the time and resources required to perform this integration internally and apply them to other aspects of their business.

This level of integration, however, requires a much higher level of maturity and sophistication from the outsourcers. Only a few of the global outsourcing service providers are well positioned to provide the end-to-end integration being sought by their customers and are developing the capabilities to offer them.

The Evolution

The global outsourcing industry has gone through a period of rapid expansion over the last two decades. In its first stage, growth was fueled by the need for cost reduction in businesses in every industry sector in the United States and Europe, and now extending to every region across the globe. The cost benefits of outsourcing have become a common expectation by all users of such services and no longer provide a true competitive advantage to any service provider.

The next stage in the evolution of outsourcing is focused on delivering more mature service delivery models through more rigorous quality methods, project and program management capabilities and discipline, better understanding of the customer’s business needs and challenges, and delivering greater value through consultative approaches and innovation. The most recent evolution in outsourcing includes providing integrated services across the many service offerings and capabilities in the context of end-to-end business process requirements of their customers. Outsourcing companies that can most effectively deliver on this integrated model will be best positioned to enjoy the next wave of growth as global economies emerge out of the recent recessionary period.