Outsourcing for Competitive Advantage

Abstract

Strategic outsourcing is emerging as one of the fastest growing management tools of the 1990's. The Electronic Manufacturing Services (EMS) industry has st compound annual growth rate of 25% over the last few years while the electronics equipment industry it serves has grown by less than 10%. Hewlett-Packard is widely recognised as one of the industry leaders in this drive to outsource, a fact which is reflected in their share of the contract manufacturing business and the growth in revenue/employee over the last seven years. This paper examines the changing business environment which has spawned this new industry. It look at the market place in which companies now compete - one which is characterised by increasing complexity of operations, the regulation and deregulation of markets, the rapid advance of technology and the ever increasing customer expectations in terms of lower cost, higher quality, increased functionality and reduced time to market. In this environment it is clear that the job of managing all the elements necessary to be successful cannot be handled by a single organisation working alone. Original equipment manufacturer's such as Hewlett-Packard have recognised this and by outsourcing have been able to reduce total costs, increase cashflow, conserve capital, access markets and focus on their own core capabilities such as product design and marketing. Finally the paper reviews the experiences at Hewlett-Packard with particular emphasis on the outsourcing of Low Volume/High Mix business which characterises the test equipment sector. It examines some of the barriers to outsourcing, looks at the lessons learned and finally reviews how a company with a well deserved reputation as a caring employer can undergo a program of such radical change while maintaining employment security.