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The main reason companies across diverse industries choose to outsource different processes is generally the same. Austrian American management consultant, Peter Drucker, summed it up neatly when he advised businesses to "do what you do best and outsource the rest!" In other words, companies should focus on their core competencies and outsource the rest. In this article, we'll look at a few service outsourcing examples to see how some of the most successful businesses followed this advice.
1. Intel
Outsourced service: 14nm chip production to TSMC
Why: Due to delays in 10nm chipset production and lower production yield with new processes, there was unexpected demand pushed back onto Intel's production line. The decision was made to keep 10nm production in-house and outsource 14nm and 300-series processor production to TSMC.
The complex nature of 10nm production had contributed to the delays. There were also trade secrets associated with the newer chipset that the company didn't want to share externally. This, along with the forecast of a 14nm chipset shortage, meant that it made more sense to outsource 14nm production to TSMC, which would enable them to quickly alleviate the shortage as well as the pressure on their manufacturing capacity.
2. Reckitt
Outsourced Service: IP Recordals
Why: Multinational consumer goods company Reckitt has a global portfolio of recognizable brands in the health, hygiene, and nutrition space, including market leaders, such as Calgon, Dettol, Gaviscon, Strepsils, and Vanish. Its brand protection department is responsible for more than 40,000 trademarks, as well as designs and copyright registrations.
Until recently, Reckitt managed all its IP recordals in-house. That changed when the company realized nearly half of its portfolio required at least one recordal. This was too big a project for an already busy in-house formalities team, so the IP department decided to outsource its recordal projects.
3. Netflix
Outsourced service: Cloud migration to AWS
Why: Following a major database corruption in 2008, Netflix could not ship DVDs to its members for three days. Not only did this create issues with its current customer base, but the company was also expecting significant growth over the coming years as it grew its streaming platform, and its solution was not scalable to support that growth at the time.
Recognizing the limitations of its vertically scaled single points of failure, e.g., relational databases, and the benefits of having a distributed cloud provider, Netflix opted to outsource its data center services to Amazon Web Services (AWS). The goal was to improve operational agility by removing the heavy lifting of data center infrastructure maintenance while improving developer productivity and scalability. After a long process, Netflix completed the migration in early January 2016.
According to the Netflix blog: "The Netflix product itself has continued to evolve rapidly, incorporating many new resource-hungry features and relying on ever-growing volumes of data. Supporting such rapid growth would have been extremely difficult out of our own data centers; we simply could not have racked the servers fast enough. Elasticity of the cloud allows us to add thousands of virtual servers and petabytes of storage within minutes, making such an expansion possible."
4. Lincoln Electric
Outsourced Service: Renewals, Portfolio Analysis
Why: Lincoln Electric is a leader in manufacturing welding, cutting, and joining products. The company files around 100 patent applications annually and launches several hundred products each year. It needed a tool to provide greater depth of understanding about its IP portfolio to help define the value of its IP assets and the resources required to protect them.
Having made the outsourcing decision, the company identified an external solution that could integrate with its existing software systems. This enables it to automate patent and trademark renewal activity and has helped the company identify the relative importance of its IP assets and how those assets relate to each other. Additionally, outsourcing has enabled Lincoln Electric to simplify the IP department's accounting system, allowing for electronic invoicing and payment, while also facilitating more accurate tracking throughout the lifecycle.
For many companies, outsourcing enables them to free up time and resources while reducing overhead costs. In some of these outsourcing examples, the business decision has a clear and successful outcome. However, there are cases where more in-depth consideration is required, and close relationships with outsourcing partners are essential. It may even be more beneficial to opt for co-sourcing, where the partner works in-house with your employees to establish a stronger relationship and create more value for the company.
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