Hard Evidence on the 'Added Value' of a Global Sourcing Strategy

Welcome to the first edition of the column, Keeping an eye on sourcing practices. The objective of this column is to share with you, in an easily digestible format, the results of research I conduct on global services sourcing, as well as my observations, as a researcher, on the good, the bad and the ugly of sourcing practices. I started this research programme in 2004, when I joined Duke University to help launch the Offshoring Research Network (ORN) with Prof. Arie Lewin. Today, I am based at the University of Brussels (ULB – Solvay Brussels School) in Belgium, and collaborate with researchers across Europe and beyond. By leveraging this international background and my global networks, I will make sure this column speaks to all of you that are actively involved in global sourcing decisions. This column will report on findings from large scale surveys, company case studies, and interviews with managers involved in global sourcing programs. I will also feature research conducted by my students, as part of their Masters or PhD thesis. So stay tuned, you'll be hearing from me every month… I am titling my first column "Hard evidence on the 'added value' of a global sourcing strategy". The question is not so much whether global sourcing adds value (I imagine I don't need to convince SSON members of this), but whether investing time, effort and money in developing a strategy for global sourcing pays off down the road. To answer this question, I have referenced responses to three questions the ORN survey asked 2000+ companies around the world between 2005 and 2012. The first question asked respondents to rate how much sourcing services in foreign countries led to the realization of positive outcomes – for instance in terms of competitiveness gains, flexibility, access to talent and so on. The second question asked whether their company had developed a formal strategy for guiding decisions and implementation of global sourcing initiatives, ideally at corporate or BU level, if not at least at the level of individual functional areas (e.g. IT, finance, R&D…). And here is what we found: Companies with a formal strategy for global sourcing scored higher on ALL positive outcomes of global sourcing assessed in the survey. (It is probably also interesting to note the low score of innovation-related outcomes, but we will leave this for a future column.) The strategic added value of deploying a strategy for global sourcing % of respondents who ‘agree’ or ‘strongly agree’ with the following realized outcomes Source: Offshoring Research Network global survey 2005-2012 But, investing in developing a good strategy also has a cost, and global sourcing is not supposed to increase costs, right? So the third question of the ORN survey I used to assess whether a strategy for global sourcing pays off down the road is that of the cost savings (off baseline costs) that global sourcing enabled surveyed companies to achieve. Taking this as a direct measure of the financial pay-off of a strategy is clearly a stretch, especially knowing how hard it is for many companies to put an exact number on both the baseline cost of a function, and the realized savings (probably also an issue we should cover in a future column…). But at least it gives some indication of the impact of developing a strategy on the economics of global sourcing. And our conclusion is that the business case is not negatively affected. In fact, if anything, the effect would rather be positive as the average percentage of savings achieved by companies without a strategy is 21%, compared to 34% for those that took the time to develop a strategy. The financial added value of a strategy for global sourcing: Average % of cost savings achieved off baseline cost (across all functions) Without strategy 21% With strategy 34% Source: Offshoring Research Network global survey 2005-2012 Now, here is what I propose: If you think there is value in this kind of research, participate in our survey to assess the capabilities of companies’ sourcing organizations (ie: the buying side of global sourcing), and I will report on the results in a future column. (I know the temptation for free-riding is high… but the quality of the results depends on your contribution. So invest the time. It will pay off!) Take the Offshoring survey here. More in August… Carine [inlinead]

Hard Evidence on the 'Added Value' of a Global Sourcing Strategy

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