Provider analysis You have interviewed an executive of a company that has outsourced strategically important services.

What key insights can you get from the following excerpt of your interview about the market determinants of outsourcing success? Do these insights also apply to manufacturing? Explain.

Our service provider was supposed to price as if they had this expertise. That is what they had sold us. Not only Company X, but I think what happened, these companies, they realised a fantastic niche in the market. But these companies first of all were consultancy companies.
How consultancy companies work is they find a niche in the market, they sell the idea, and afterwards they learn how to do it. I think it happened again in the outsourcing area. The difference is that you can learn how to do what you do if it’s a consultancy project. You cannot do that if your job is to deliver services. You need to know how to drive if you are sitting in the car, not just go along for the ride. I think that’s a little bit of what happened in the market.
When I talk to my colleagues, I’ve been talking to a lot of people in other companies to know what’s going on, it’s always the same story. And I think the outsourcing market is also learning how to do this. They are learning fast, they’re buying a lot of expertise, but I think some companies that started earlier on this business, they suffered a little bit more because there was no expertise, not like now, from the providers. So the answer is, yes, we bought expertise, but we didn’t get the expertise we thought we were buying, at least not at first. It varies a lot.
In some areas, Company X and Company Y are very good, but not in all. But you know what is difficult in this equation is (cost of course is an important driver) that these providers need to cost us less than our internal organisation would cost. To cost less you can’t pay a lot for very deep expertise. They need to find a mechanism where they can pay for experts but not as many experts as we would need internally. They need to have more critical mass, but I don’t know what is the solution. It’s a tricky equation.