Is Outsourcing a recipe for success in retail business?

The behavior of customer’s world over is undergoing a sea change because of new marketing techniques and partly because of changing customer preferences. Economy is too not showing any signs of recovery. These factors are making the retailers worldwide grappling to have a better control on their core business. The retailers are adopting some new strategies in place to manage this challenging environment. They are looking forward to outsource their non-core retail functions like HR, finance, logistics, IT, customer service etc.

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The benefits of outsourcing for retailers are enormous. Outsourcing will help the company to reduce cost and redirect their employees from their core business to noncore ones to cut costs. However the decision to outsource should be a strategic one, and not based only on the cost factor.

What to Outsource in retail business?

Before outsourcing, the retailers should re-examine their value chain and decide which functions to outsource. They should access the capability of the skills available in-house and align these skills with the business strategy. They should evaluate if the in-house skills are good enough to execute the business strategy, and if not will it be cost effective to develop the required skills in-house and how quickly the same can be developed.

Outsourcing turns to be best bet for retailers when they outsource an activity which is not a core function for them. This can be made clear with an example. Jacques Vert, a leading women’s brand retailer in U.K. outsourced its IT activities to IT services provider Retail Assist in UK.  They decided to outsource because they lacked the competency within their company and felt that they need to develop the expertise and best practices to serve their customer better. According to the company sources, outsourcing of technology business to Retail Assist was a win-win situation for both of them as it helped them to concentrate on other core areas to stay competitive in the changing retail world. The retailer also found that by outsourcing their IT activities, they were able to achieve economies of scale which would not have been possible if they had tried to develop the expertise in-house with relatively a small team.

While outsourcing benefits retailers in many ways, the challenge for the retailers lies in choosing the right partner to deliver the ‘value’. They may get an outsourcing partner who delivers the services at low cost but may not deliver the expected value. So retail companies should be careful in choosing the partner and they should assess what value the service providers can deliver to the business.

The retailers should try to build a relationship with their outsourcers to add value. Retail companies should treat their outsourcing partners as their strategic partners who are adding those values to their business to achieve a much larger growth.

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