Global service providers outsourcing's next wave: going beyond outsourcing to merely lower costs, today's leading companies are using "global sourcing" to drive new forms of revenue and create top-line growth. What value are they obtaining, and how are they doing it?

• Author: Forbath, Theo
• Position: GLOBAL SOURCING

Most companies have outsourced some portion of their business to lower costs and, over time, have achieved cost savings in the outsourced portion of the business. But unless your efforts in outsourcing to lower costs are unusually good, you are not gaining a sustainable competitive advantage, since your competitors are outsourcing just like you are.

Leading companies are now using global resources to drive new forms of revenue and grow their top line. Companies are realizing new forms of business value through their global sourcing partnerships by accelerating new product development, shortening time-to-market and finding successful entrees into new markets. Companies that are realizing these benefits from their global sourcing strategies are also creating new forms of value for their customers and sustainable competitive advantages for their businesses. This is the next wave of outsourcing.

Outsourcing's Next Wave

The next wave of outsourcing is about assessing all aspects of an organization's business activities to determine if and where there are opportunities to leverage outsourcers' capabilities, intellectual property, best practices, global infrastructure or geographic presence to access resources and capabilities around the globe that may not be available to your business today. Outsourcers that provide this expanded set of services are referred to as global service providers (GSPs) to emphasize the differentiation between these firms and outsourcers, which provide only low-cost staff augmentation services.

These new capabilities are helping corporations operate business processes and develop products better, faster and at lower costs. Several recent examples demonstrate how outsourcing is evolving and how major outsourcers are helping their clients advance beyond the basic cost-saving benefits of global sourcing:

* On Jan. 15, 2007, Banco Pichincha, Ecuador's largest private bank, announced the strategic outsourcing of its core banking solution, followed by its information technology (IT) and business operational processes to Indian outsourcer Tata Consultancy Services (TCS). The deal is valued at $140 million over five years.

* High-tech manufacturers are using Wipro Technologies's lean manufacturing expertise to shorten new product development cycle from 10-12 months to 6-8 months, while lowering costs 30 percent, by using offshore resources.

* A global IP-PBX network equipment and solution provider filed a U.S. patent for the innovation involved in a product that Infosys Technologies Ltd. designed and developed. The Web-based software tool was delivered in 40 percent less time and at a 40 percent reduced cost.

Moving beyond the basic skills needed to perform IT services, quality assurance, testing and software development, GSPs now have product design, product architecture and lean manufacturing skills.

Similar to the Japanese auto manufacturers, which started building lower-value cars for the U.S. market more than 20 years ago (and...