Outsourcing -- 3

Outsourcing
Part Three

See also:
Outsourcing -- Part One
Outsourcing -- Part Two
Outsourcing Information Technology Systems and Services
Are We Indispensable?
The Best Gift Arrived in a BIG PACKAGE

          The popular perception of Pitney Bowes is of a rather stodgy corporation that has been producing postage metering machines almost forever and enjoys an unassailable position in this market. In 1920, Arthur Bowes, an English-born addressing machine salesman who had acquired control of the Universal Stamping Machine Company (Post Office stamp canceling machines) in Stamford, Connecticut, in 1912, and Arthur Pitney, who had been developing a postage metering machine for 14 years, founded the Pitney-Bowes Postage Meter Company. The following year, Pitney was awarded his final patent and an Act of the Congress authorized the use of his machine. The Company then began the slow and methodical business of leasing its machines to customers.

          In the 1960s, Pitney Bowes launched a product-centered expansion and diversification program; its two most prominent products became high-end copiers and then sophisticated facsimile machines designed to meet the needs of large corporate customers. By the 1990s, its core business had become comprehensive mailing systems and office products; postage meters represent a still-important but rather subordinate business within the corporation.

          In view of their preeminent grasp of mailing operations and allied business communications, Pitney Bowes Management Services has now been established to become "the nation's premier business support services outsourcing company." Interviewing 100 of the Fortune 500 companies, 77 percent of these firms disclosed ongoing plans to outsource some elements of their business support services. Currently, 39 percent of these firms are already outsourcing all or a part of their electronic imaging requirements; this number is expected to increase to 51 percent -- more than half -- within the next two years. While records management is currently only outsourced by seven percent of these corporate giants, more than one out of every five respondents (21 percent) anticipate this sensitive activity will be outsourced within the next two years.

          Refocusing its unique technological expertise, Pitney Bowes Management Services has assumed total responsibility for the mailroom and electronic imaging operations at the 1.0 million square-foot world headquarters of Merck & Co., Inc. in Whitehouse Station, New Jersey. This is a strategic shift from selling a product to selling an integrated operation. James Longley of Pitney Bowes has observed, "Companies are looking for partners that fully understand the technological aspects of creating, processing, storing, retrieving, distributing, and tracking their documents." Outsourcing these business support services has enabled Merck to concentrate on its core pharmaceutical business and to also achieve reductions in costs.

          Longley notes that document handling incurs two types of costs. "There are management fees -- especially labor, equipment, and administration ... There are also the mailing and shipping costs. Reducing these requires real expertise in things such as the wide range of presorting discounts available, multiple alternative shipping options, and the right management procedures to ensure that expedited delivery is used at the right times and for the right reasons." The benefits of these outsourced management services are readily recognized by William J. Tortoriello, Director of Site Services for Merck. "Pitney Bowes does more than handle operations. They add value by identifying inefficiencies and recommending solutions that fit our unique needs."

          With annual sales in excess of $3.0 billion, Pitney Bowes is a very big business. However, because of our familiarity with Pitney Bowes, this case offers an illuminating model for the owner/ manager of the smaller business. Pitney Bowes Management Services is seeking to exploit its technological expertise in new ways. This is not a strategy limited to building new and improved products or to expanding and diversifying a product line. This is a new strategy focused on selling an integrated operation a comprehensive service where its unique technological expertise enables its customers to readily find valued added by outsourcing these operations. Pitney Bowes is discovering attractive outsourcing opportunities not in a superior product but in an operational competency large corporate customers are comfortable entrusting into its care. In seeking outsourcing opportunities, how do you define your unique operational competency?

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Thomas A. Faulhaber, Editor
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URL: http://www.businessforum.com/outsourcing3.html
Revised: November 16, 2004 TAF