what is outsourcing
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
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
• 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
• 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 core competence
• 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 economic value
• 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 risks
• 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?
Questions to ask on quality
Decision tree
CoreProcess?
Invest andNurture in
house
Positive EconomicValue after CostBenefit analysis?
Would createUnacceptableLevel of risks?
Top-qualityIn-house
Capabilities?
Outsourceactivities
Yes
Yes
Yes
Yes
No
No
No
No