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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.

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What is outsourcing

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  1. 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

  2. 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

  3. 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

  4. 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

  5. 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?

  6. 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?

  7. 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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