Outsourcing: from periphery to core

Conventional wisdom suggests that functions like sales and marketing that are often make-or-break decision for companies, should not be outsourced. Given this, analysts argue that Nissan Motor India’s decision to outsource sales and marketing in the country — India is the only market where Nissan follows this model — may be a reason why, despite having a competent product portfolio, its sales have been slow to pick up. Here’s what our panel of experts have to say.

Dheeraj Sinha
Chief strategy officer & South and South East Asia, Grey

Unlike its popular tagging, outsourcing may not always be about getting the work done cheaply. Many times organisations outsource certain jobs because there are experts out there who can do it better. For instance, airlines outsource catering, advertising agencies outsource film production and IT companies outsource talent acquisition. Food to an airline service, films to an advertising agency and engineers to an IT company are extremely critical, yet they are outsourced for the expertise that these jobs require. An airline could possibly acquire a catering company and an advertising agency can hire film directors but both these abilities function and flourish better when they are outside the encumbrances of the client organisations.

An organisation can, therefore, outsource a critical function if it feels that the right people for the job are outside and are better left outside than acquired. So, is marketing indeed a specialised function, which would work better outside an automotive company such as Nissan? Or is this merely about getting the same job done cheaper? Marketing as a function has two aspects to it — one is about thinking marketing strategies, brand positioning and new product development while the other aspect is about setting up distribution, maintaining service quality and on-ground sales. The former is more about strategy while the later is more about execution.

Marketing execution — distribution, sales and service — belong to the same basket as food catering, film production and talent acquisition. In a vast market such as India, setting up distribution, service network and on ground sales force can well be seen as a specialised job, therefore outsourced. The key success factors in marketing execution are about setting up and following processes, building scale and delivering efficiency. Outsourcing marketing execution can, thus, be a case of outsourcing an expertise that best resides outside the organisation. This may even deliver better efficiencies. However, I would worry if the core marketing thinking — marketing strategy, brand positioning and new product development — were a part of this devolution. Not because people outside Nissan would be any less adept at this, but marketing represents the consumer in an organisation; pushing marketing out is tantamount to pushing the consumer out. This is even more critical for an automotive company, which is likely to be driven more by engineering rather than consumer thinking.

Marketing is not a fringe function anymore. In fact, consumer product companies need to embrace marketing as the heart of the organisation. Armed with the insight into the consumer, marketing needs to interact across functions to embed consumer needs right at the new product design stage. The best form of marketing is when the ideas are embedded in the product, not when cleaver spins are dreamt of after the product has been made. However, for consumer insight to begin to inform product design, its imperative that marketing becomes central to the organisational structure.

India has not been an easy market. Automotive brands in India need to strike the sweet spot of understanding exactly what the people want and being able to deliver it as the right package — of style, comfort, efficiency and cost of ownership.

Nissan may be on the right path to outsource marketing implementation in a complex and vast market as India. But marketing thinking is something it will need to drive the fortunes of the brand in this country. It would need its current offerings and future line-ups to be embedded with astute local understanding. This is where it will need marketing to be at the heart of the organisation, not outside.

Abdul Majeed
Partner, PricewaterhouseCoopers

To control the cost of providing top-quality support to consumers, leading companies are now increasingly outsourcing selected support functions to external service providers. The third-party support providers, who have the experience, equipment, trained staff, and established processes, are the one’s most sought after. It also allows companies to concentrate on developing their core business. Few key benefits of outsourcing are cost savings and better capabilities. Outsourcing also allows companies to focus on other priorities and develop their core business.

Another advantage of outsourcing is the access to capabilities — whether human talent, process excellence, or sheer physical resources. For instance, a company that designs an iPod in its Cupertino, California, offices, outsources the manufacturing to select Chinese firms because they can build it cheaply due to their unique intellectual property in materials science and packaging technology. It also outsources its content creation services to an open community of providers — from multibillion dollar music publishers to amateur podcasters.

Sometimes the expertise provided by the service provider is better/advanced when compared to in-house expertise of the company. The parent company may not have the expertise or understanding of the local market conditions to manage critical functions like HR, IT or marketing in-house.

Outsourcing can free up a company’s resources, improves flexibility or even changes the rules of competition in an industry. For example in 2003, an Indian mobile phone operator lacked the capital to respond to a massive growth opportunity in its domestic market. It decided to cut an end-to-end IT outsourcing deal. Much of the compensation in this deal depended on market growth. Today, the company is the country’s market leader in the telecom domain. Telecom giants manage complexity every day. Each company must achieve an optimal balance of top-down management and collaborative partnering in dealings with suppliers, channel marketers, companies selling complementary services and customers. Thus, a right kind of collaborative partnering business model makes possible the squaring of many circles: cost savings with growth, speed as well as quality of service provided.

As the driving force for outsourcing has shifted from lowest cost to best business advantage, automobile companies are increasingly seeking providers who can also become their long-term partners in business. This is more vital in a emerging and growing market like India. Companies involved should carefully define set of agreements that clearly outlines the scope of support services to be performed by the service provider. In these relationships particularly, success depends on aspects other than rigid measurement of service levels. Having the right management team and governance structures in place for the life of the contract can make a material impact.

Thus, companies that apply best practices create structures with clearly defined roles and responsibilities, establishing transparent and direct accountability for both parties. Together with service providers, they agree on performance measures and procedures for monitoring the relationship. They also need to periodically assess the state of affairs to ensure that providers are delivering value at the expected level and that relationships work as envisioned. This way the two partners create mutual understanding of objectives. This also helps the management in both the companies in building long-term confidence and trust. Only then such partnerships can enter a virtual cycle of continuous improvement.