What is outsourcing
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What is outsourcing. Outsourcing is the transfer of ownership of a business process to a supplier Critical elements: Buyer owns the results of the process, not the process itself Supplier’s ownership of process includes control of management and resources. Four criteria for outsourcing.

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What is outsourcing

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What is outsourcing

What is outsourcing

  • Outsourcing is the transfer of ownership of a business process to a supplier

  • Critical elements:

    • Buyer owns the results of the process, not the process itself

    • Supplier’s ownership of process includes control of management and resources


Four criteria for outsourcing

Four criteria for outsourcing

  • Core Competence

    • Allows focus on developing and leveraging core competence and serving customers better

  • Economic value

    • Utilize scale, improve process efficiencies and reduce total cost of ownership

  • Risk mitigation

    • Remove some sources of risks and reduce the magnitude of existing risks

  • Quality improvement

    • Enhanced products and services


Questions to ask on core competence

Questions to ask on core competence

  • If starting our business today, do we want to develop this capability internally?

  • Would we want to staff this process with our best associates?

  • Does this process create or defend an unique competitive advantages of COF

  • Is this process directly contributing to our business growth?

  • Would customer satisfaction or loyalty suffer if we did not own this process


Questions to ask on economic value

Questions to ask on economic value

  • Determine our total costs of ownership for performing the process in-house

  • Determine the pricing for outsourcing

  • Value of avoiding future investments

  • Revenue gained due to improved speed-to-market and customer satisfaction as a result of outsourcing

  • Switching costs

  • Complete cost vs. benefit analysis


Questions to ask on risks

Questions to ask on risks

  • Would outsourcing help us to mitigate some existing risks by transferring it to suppliers?

  • What’re impacts on people by redefining jobs, and restructuring reporting relationship?

  • Would outsourcing hurt our relationship and closeness with end customers?

  • Would outsourcing leak our proprietary information?

  • Would outsourcing expose us to unwanted legal liabilities?


Questions to ask on quality

Questions to ask on quality

  • Would external capabilities lead to better products and services than our internal capabilities?

  • Would we have access to suppliers’ expertise not available internally?

  • Would we have increased responsiveness to markets and customers?

  • Would we be able to take advantage of suppliers’ capacity flexibility, scalability and continuing investment not available in house?


Decision tree

Decision tree

Core

Process?

Top-quality

In-house

Capabilities?

No

Would create

Unacceptable

Level of risks?

Yes

Yes

No

Invest and

Nurture in

house

Yes

No

Positive Economic

Value after Cost

Benefit analysis?

Outsource

activities

Yes

No


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