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Transformational Outsourcing

January 15, 2004 | Jane C. Linder | Operations

When executives began outsourcing substantial portions of their operations more than a decade ago, they did it to offload activities they declared to be noncore in order to cut costs and improve strategic focus. Today, however, companies are looking outside for help for more fundamental reasons -- to facilitate rapid organizational change, to launch new strategies and to reshape company boundaries. In doing so, they are engaging in transformational outsourcing: partnering with another company to achieve a rapid, substantial and sustainable improvement in enterprise-level performance.

On the basis of research on 20 companies that have attempted the practice, the author has identified four broad organizational categories that can benefit from transformational outsourcing. Startups such as TiVo, for example, need partners to scale up rapidly. "Crouching tigers" such as Family Christian Stores are being stymied by a deficiency in some key capability from meeting their strategic aspirations. "Fallen angels" -- such as BP in the mid-1990s -- settle into the wrong performance trajectory and need strong action to change their tack. And organizations on the edge of survival -- as Britain's National Savings and Investments was several years ago -- need transformational outsourcing to become "born again."

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