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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
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