Outsourcing in 2023 and Beyond
The rate of technological development has resulted in increased pressure to achieve market leadership. Companies are even more pressed to deliver unique value to customers in a landscape where differentiation can often mean speed.
With this challenge in mind, what could you do with sharper focus on your core competencies? If the focus of your team remained on the areas that delivered unique value to your customers, how much further could your resources go?
This is the question examined by a classic article in MIT’s Sloan Management Review. Researchers found that strategically outsourcing product development to a third-party partner delivers two key benefits:
1. Devote more time and energy to your core competencies: A third-party product development partner allows you to “concentrate the firm’s own resources on a set of ‘core competencies’ where it can achieve definable preeminence and provide unique value for customers.”
2.Strategically outsource activities that don’t deliver an edge: A third-party partner allows you to “strategically outsource other activities — including many traditionally considered integral to any company— for which the firm has neither a critical strategic need nor special capabilities.
This article is from 30 years ago, but the findings ring even more true in today’s climate. Leading companies are increasingly turning to 3rd party partnerships to amplify their core competencies beyond the abilities of their in-house team while gaining speed to market where it matters most.
This idea is reflected in a recent report from Bain, which found that 60% of engineering executives plan to increase outsourcing over the next three years. This increase is driven by increased pressure to overtake rivals in the innovation race while battling an ongoing talent shortage in the marketplace.
Across the board, the engineering workforce is getting older. Nearly 30 percent of all engineering and science degree holders in the labor force are 50 or over and expected to retire in the next 15 years.
As companies look to shore up these gaps, the National Science Foundation (NSF) found the greatest challenges in recruiting experienced engineers and those with project management experience. This reflects the changing needs of companies who are interested in outsourcing a wider scope of activities, including full programs, instead of simply augmenting staff.
By outsourcing product development, a firm can leverage a wide toolbox of expertise that complements their core team, allowing them to stretch the boundaries of what is possible. A high-quality product development partner has a unique eagle-eye view of current industry trends and best practices. When paired with the core-competencies that a firm specializes in, this unique view delivers a market edge that might not be attainable by containing innovation in-house.